Outpatient Immunosuppressive Drugs Under Medicare

July 1991 OTA-H-452 NTIS order #PB92-117720 Recommended Citation: U.S. Congress, Office of Technology Assessment, Outpatient Immunosuppressive Drugs Under Medicare, OTA-H-452 (Washington, DC: U.S. Government Printing Office, Septem- ber 1991).

For sale by the U.S. Government Printing Office Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328” ISBN 0-16 -035315-7 Foreword

Of all the astonishing achievements of modern medicine, the ability to successfully transplant a living organ from one human being to another is perhaps one of the most awesome. Immunosuppressive drugs are one of the spectrum of technological advances that have made organ transplants an everyday phenomenon. At the same time, however, transplant recipients’ needs for these drugs have presented Medicare with a continuing policy dilemma, because Medicare does not usually pay for outpatient prescription drugs. In 1984, the year after cyclosporine made its debut onto the health care market, OTA reported to Congress on the likely benefits of the drug for Medicare kidney transplant recipients. The present report, requested by the Senate Committee on Finance in the wake of the repeal of the Medicare Catastrophic Coverage Act, examines Medicare’s current immunosuppressive drug coverage dilemma and the policy tradeoffs it entails for the 1990s. OTA reports would not be possible without the assistance and input of a wide variety of individuals from both the public and the private sectors. OTA staff and contractors gratefully acknowledge the contributions of the many people who provided data, clarified facts, presented views, and reviewed the drafts of this report. The final responsibility for the content of the report rests with OTA.

ill. . . Acknowledgments

OTA staff would like to thank the following individuals for their assistance during the preparation of this report. (These individuals do not necessarily agree or disagree with the findings and conclusions of this report.) OTA assumes full responsibility for the report and the accuracy of its contents. James Armitage Joel Kallich North American Autologous Bone Transplant Registry RAND Corp. Lincoln, NE Santa Monica, CA Remy Aronoff D’Etta Waldoch Koser U.S. Health Resources and Services Administration International Bone Marrow Transplant Registry Rockville, MD Milwaukee, WI Robert Block Susan Laudecina Blue Cross and Blue Shield Association Intergovernmental Health Policy Project Chicago, IL Washington, DC Carmella Bocchino James Light Nursing Economics Washington Hospital Center Washington, DC Washington, DC Judith Braslow Shari McCullough U.S. Health Resources and Services Administration IMS America Rockville, MD Plymouth Meeting, PA Bureau of Policy Development William McGivney U.S. Health Care Financing Administration American Medical Association Baltimore, MD Chicago, IL William Comanor John Newman University of California, Santa Barbara Reston, VA Santa Barbara, CA Julie Ostrowsky Dennis Cotter Chicago, IL Health Technology Association Richard Rettig Washington, DC Institute of Medicine Paul Eggers Washington, DC U.S. Health Care Financing Administration Walter Rutemueller Baltimore, MD U.S. Health Care Financing Administration Denis Grady Baltimore, MD Sandoz Pharmaceuticals Corp. Bernadette Schumaker East Hanover, NJ U.S. Health Care Financing Administration Philip Held Baltimore, MD Urban Institute Linda Sheaffer Washington, DC Division of HIV Services Tom Holohan Rockville, MD Office of Health Technology Assessment Jane Sisk Rockville, MD Dobbs Ferry, NY Alan Hull Sandy Zachary Dallas Nephrology Associates U.S. Health Care Financing Administration Dallas, TX Baltimore, MD Barry Kahan The University of Texas Health Science Center Houston, TX

iv OTA Project Staff—Outpatient Immunosuppressive Drugs Under Medicare

Roger C. Herdrnan, Assistant Director, OTA Health and Life Sciences Division

Clyde J. Behney, Health Program Manager

Project Staff Elaine J. Power, Project Director

Diane Burnside Murdock, Contractor/Principal Analyst

Other Contributing Staff Sharon Y. Hamilton, Research Assistant David P. Reeker, Congressional Fellow

Administrative Staff Virginia Cwalina, Office Administrator Carolyn Martin, Word Processor Specialist Eileen Murphy, P.C. Specialist

v Contents Page

Chapter 1: Summary and Options ...... 3

Chapter 2: Overview of the Transplant Population ...... 15

Chapter 3: Immunosuppressive Drug Therapks ...... 23

Chapter 4: The Adequacy of Current Medicare Coverage of Immunosuppressive Therapy ...... 31

Chapter 5: Medicare Expenditures for Immunosuppressive Drug Therapy ...... 39

Appendix A: Method of the Study ...... 47

Appendix B: Medicare Payment Policy for Organ Transplant Procedures ...... 48

Appendix C: Glossary of Abbreviations and Terms ...... 49

References ...... 53

vi Chapter 1

Summary and Options Contents

INTRODUCTION ...... *.. .*. ..*...... +*. ..** +"*" *""" *""" *""" `"** +" """e** 3

THE TRANSPLANT RECIPIENT POPULATION ..+ ...... ● ..,. 3 IMMUNOSUPPRESSIVE DRUGS ...... 5 THE ADEQUACY OF CURRENT MEDICARE COVERAGE ...... 6 MEDICARE EXPENDITURES FOR IMMUNOSUPPRESSIVE DRUGS ..... + ...... 8 ISSUES AND OPTIONS ...... 9

Figures Figure Page 1. Organ Transplants: Distribution by Type of Organ and Medicare Coverage, 1988 ...... 4 2. Future Medicare Coverage for Recipients of Medicine-Covered Transplants ...... ,.. 5

Tables Table Page 1. Kidney Transplant Patients’ Risk of Out-of-Pocket Liabilities for Outpatient Immunosuppressive Drugs by Insurance Status ...... +...... ++”+”’”’””” 7 2. Factors Influencing Future Medicare Expenditures for Immunosuppressive Drug Therapy . . 8

3. Medicare Policy Options for Outpatient Immunosuppressive Drugs . . . . . ,...... ● ● 9 4. Estimated Number of Persons for Whom Medicare Would Have Paid for Immunosuppressive Drug Therapy Based on Selected Coverage Policy Options, 1988-90 ...... , . . . ..,....+, 11 Chapter 1 Summary and Options

INTRODUCTION Medicare expenditures for outpatient immunosuppressive drugs and some factors that might affect Drugs that act to suppress the body’s normal future expenditures. immune reactions are a critical medical therapy for persons who have received organ transplants. Most The remainder of this chapter summarizes the such individuals must continue imrnunosuppressive report and discusses the advantages and disadvan- drug therapy throughout their lives to prevent organ tages of several possible approaches to changing rejection. Medicare coverage and payment for immunosuppressive drugs, Medicare, the Nation’s health insurance program for the elderly and disabled, does not usually cover THE TRANSPLANT RECIPIENT outpatient prescription drugs. Congress granted a 1 POPULATION special exception to this rule in 1986 to ensure that Medicare transplant recipients had at least initial The demand for outpatient post-transplant im- access to outpatient immunosuppressive therapy. At munosuppressive drugs depends heavily on the present, however, Medicare’s coverage of this ther- number of eligible organ transplant recipients with apy is limited to 1 year, starting upon the patient’s a successful, functioning graft. Medicare restricts its discharge from the hospital after a Medicare- organ transplant coverage to certain organs and covered transplant procedure. certain categories of patients. Presently, Medicare covers heart, kidney, liver, and bone marrow trans- In March 1990, the Senate Committee on Finance plants (for beneficiaries with certain medical condi- asked the Office of Technology Assessment (OTA) tions). Medicare does not cover heart/lung, lung, or to examine Medicare’s coverage and payment poli- pancreas transplants, although these transplants are cies for outpatient immunosuppressive drug ther- 2 sometimes covered by other insurers. apy. In response to that request, this report addresses two basic questions. First, do Medicare In 1988, the most recent year for which compre- beneficiaries have adequate access to outpatient hensive data are available, nearly 15,000 organ immunosuppressive drugs under existing coverage transplants were performed in the United States.3 and payment rules? Second, how might Medicare Kidney transplants were the most frequently per- coverage and payment for immunosuppressive drugs formed, accounting for 62 percent of the U.S. total be changed, and what are the likely implications of (figure 1). Medicare covered an overwhelming those changes? majority (nearly 90 percent) of those kidney transplants, compared with only 7 percent of heart To provide a framework for discussing possible transplants, 3 percent of allogeneic bone marrow options for changing Medicare immunosuppressive transplants, and less than 1 percent of liver trans- drug policy, the report presents background on four plants. Nonetheless, because kidneys are the most subjects. Chapter 2 describes the patient population commonly performed transplants, Medicare covered using immunosuppressive drugs-i. e., transplant a majority (57 percent) of the Nation’s transplant recipients with a functioning graft (implanted organ). procedures overall in 1988. Chapter 3 describes the immunosuppressive drugs used by transplant recipients and the variation that The percentage of transplant recipients covered exists in drug protocols and their costs. Chapter 4 by Medicare is high because of Medicare’s End- examines the adequacy of current coverage policy Stage Renal Disease (ESRD) entitlement program, for immunosuppressive drugs used by Medicare which covers nearly all of the U.S. kidney transplant beneficiaries. Chapter 5 discusses national and recipients for 3 years following the day of surgery

1 The statutory exception permitting short-term coverage of these drugs took effect on Jan.. 1, 1987 (Public Law 99-509). 2The committee requested an axamination of coverage and payment for home intravenous drug therapy in the same letter. The OTA report on that topic will be published separately. 3 Includes all organ transplants and all allogeneic bone marrow transplants. –3– 4 ● outpatient Immunosuppressive Drugs UnderMedicare

Figure l—Organ Transplants: Distribution by Type of Organ and Medicare Coverage, 1988

Medicare 89% 1 Kidney I

Other payer 11% 9,123 kidney transplants

1 Medic are 3% Bone mar row 0.2% Heart 11% Heart/lung 0.5% Other payer 97% 14,706 transplants

6,583 other organ transplants

SOURCE: Office of Technology Assessment, 1991. Based on information provided by U.S. Department of Health and Human Services, Public Health Service, Health Resources and Services Administration, Division of Organ Transplantation; and the Prospective Payment Assessment Commission.

(figure 2).4 Whereas other persons must already be organs is still not sufficient to meet the needs of entitled to Medicare (by being elderly or disabled) in those waiting for these transplants, however. Even order to receive a Medicare-covered transplant, any the waiting lists may understate actual medical need; patient diagnosed with end-stage renal failure who some physicians believe that the number of qualified requires dialysis or a kidney transplant may be patients who are not represented on the waiting lists entitled to Medicare as a result of this medical need. is as large as the number who are (25). Although about half of kidney transplant recipients with a functioning graft lose Medicare eligibility The number and success of transplant procedures after 3 years, the remaining 50 percent continue to have increased over the past decade, although graft receive Medicare benefits past the 3-year limit due survival rates vary markedly by the type of organ. 5 to their age or continuing disability (17). For lung and heart/lung transplants, l-year graft survival rates are still less than 60 percent (5).7 The total number of organ transplants performed Kidney graft survival rates are much higher, with per year has been increasing. The average annual l-and 5-year cadaveric kidney survival rates of 78 rate of increase in kidney transplants has been only and 52 percent, respectively. Living-donor kidney 5 percent in recent years6 due to the limited supply transplants are even more successful (5). Overall, of of kidney organs available for transplant. The the nearly 15,000 individuals who received organ average annual growth rates for other organ trans- transplants in 1988, OTA estimates that approximately plants have been much higher. The number of liver 11,000 (73 percent) were living in 1989 with a transplants, for example, has been increasing by functioning graft. Almost all of these patients would nearly 50 percent per year. The supply of donated have been on immunosuppressive drug therapy.

Conversely, Medicare covers only a small percentage of nonrenal transplants because few transplant recipients are elderly (5). 5 In fact, advocates argue that patients strive for continued disability status to assure insurance coverage of ongoing outpatient care (9). 6 Based on 1984--89 data. 7 Survival rates are based on 1989 data. Chapter Summary and Options ● 5

Figure 2—Future Medicare Coverage for Recipients of Medicare-Covered Transplants

3 years 1 year I 1 - Kidney transplant recipients —

Recipients — of other organs

Recipient not eligible Recipient eligible Medicare covers for Medicare for Medicare immunosuppressive drugs

SOURCE: Office of Technology Assessment, 1991.

IMMUNOSUPPRESSIVE DRUGS Cyclosporine has improved graft survival rates and decreased the number of infection-related com- Medicare’s policy is to cover all drug products for plications, the average length of hospital stay, and outpatient self-administration that are approved by the number of organ rejection episodes compared the U.S. Food and Drug Administration (FDA) and with early approaches (7,43). However, the costs of have a label indicating use for immunosuppressive protocols using this drug are dramatically higher therapy. At present, only four drugs are FDA- than the cost of traditional therapies. For example, approved for post-transplant immunosuppression: the reported cost of outpatient therapy using only azathioprine (Imuran), cyclosporine (Sandimmune), prednisone and azathioprine was $2 per day in 1988, antithymocyte globulin (Atgam), and muromonab compared with reported average costs for cy- CD3 (Orthoclone OKT-3). Each of these drugs is closporine therapies ranging from $9 to $23 per day made by only a single manufacturer. In addition, (6,7). The average annual costs of cyclosporine- Medicare covers adjunct prescription drugs (e.g., based protocols range from an estimated $4,000 to prednisone) when they are used as part of the 8 immunosuppressive therapeutic regimen (56). $6,000 per year (7). Costs for immunosuppression can vary substantially across recipients, because Early approaches to chemical immunosuppres- some recipients still receive the traditional less sion relied mainly on a combination of azathioprine costly drug protocols, and because the cost of and prednisone. With cyclosporine’s introduction therapy for patients on cyclosporine-based protocols into widespread use in 1984, however, a variety of often decreases as drug dosages are reduced over new drug protocols followed. At present, nearly all time (7,28). Future per-patient costs may increase or are based on cyclosporine; 90 percent of transplant decrease as new drugs (e.g., FK-506) enter the recipients receive this drug as the primary immuno- market. Costs may also change when Sandoz’s suppressive agent (5). patent for cyclosporine expires in 1995.

8 These costs include he costs of other drugs used in the protocols. 6 ● Outpatient Immunosuppressive Drugs Under Medicare

THE ADEQUACY OF CURRENT the transplanted organ, or drugs to treat underlying diabetes or hypertension.) MEDICARE COVERAGE Beneficiaries with other third-party coverage in Since January 1, 1987, Medicare has covered addition to Medicare have some protections from outpatient immunosuppressive drugs. Drug cover- these costs. During the first year of outpatient age is for 1 year from the date of a patient’s discharge immunosuppression, when Medicare covers the from the hospital after a Medicare-covered kidney, immunosuppressive drugs, many beneficiaries have heart, liver, or bone marrow transplant (see figure 2) private insurance or Medicaid that covers the (Public Law 99-509). beneficiaries 20 percent coinsurance liability. There- Medicare reimburses for these drugs on a reason- after, however, Medicare drug coverage ends. The able charge basis when the drugs are dispensed by other insurer’s policies then apply, and transplant a retail pharmacy, physician, or other supplier, and recipients are obligated to pay that insurer’s coinsur- on the basis of reasonable costs when the drugs are ance and any other liabilities (e.g., deductibles). 9 dispensed by a hospital pharmacy. In both cases, the Beneficiaries whose private insurance is primary beneficiary is subject to the Part B deductible of must pay some coinsurance during the frost year. $100, a coinsurance amount (20 percent of the lO Medicare requires that private insurers covering charge ), and (if the drugs are obtained from a ESRD beneficiaries be the primary payer for the frost nonhospital supplier) any additional amount above 18 months these beneficiaries are on Medicare. In the Medicare-allowed charge. other words, even though an ESRD patient is entitled In addition to the drugs themselves, certain to Medicare coverage, Medicare will pay for covered services related to imrnunosuppressive therapy may services provided to these beneficiaries only after also be billed to Medicare. Physicians may bill for any existing private insurance policies have paid. patient visits during which they provide only therapy About half of ESRD kidney transplant recipients management services, and if the management visit undergo the transplant during the frost year of takes place in a hospital outpatient setting the Medicare eligibility (17). Consequently, for these hospital could submit a bill for this encounter as recipients the private insurer is primary during at well. The extent of such billing in practice, and the least part of the frost year on outpatient immuno- amount of patient coinsurance obligations that suppressives, and the beneficiary must pay that accompany it, are unknown. insurer’s required coinsurance during that time. Expanding Medicare’s coverage policy will have Thus, the degree to which Medicare transplant the most impact on access to therapy if a significant recipients are at risk of high out-of-pocket expendi- number of beneficiaries do not already have ade- tures for imnmnosuppressive drugs depends heavily quate coverage of outpatient immunosuppressives on whether they have additional third-party cover- through other payment sources. Under current rules, age. As shown in table 1, a majority of Medicare a beneficiary with no health care coverage other than transplant recipients (approximately 57 to 87 per- Medicare must pay the 20 percent coinsurance for cent, or roughly 4,700 to 7,200 recipients in 198811) the drugs during his or her first year on outpatient have third-party coverage through private insurers or immunosuppressives, or between roughly $570 and State Medicaid programs that pay for outpatient $850 (in 1988 dollars) (see ch. 4). After the l-year immunosuppressive therapy after Medicare drug drug coverage period ends, this beneficiary would coverage ends (see ch. 4). As long as they remain pay the full cost of the treatment, or roughly $4,000 eligible for Medicare, these patients are at low to to $6,000 per year. (The beneficiary might also be medium risk of significant out-of-pocket expenses, purchasing additional drugs uncovered by Medicare, depending primarily on whether they are liable for such as antifungal or antiviral drugs used to protect copayments. For most of these patients, the major

9 See app. C for definitions of reasonable charges and reasonable costs. 10 The relevant charge is the Medicare-allowed charge for nonhospital suppliers and the submitted charge for hospital pharmacies. Although hospital pharmacies are reimbursed by Medicare on the basis of their costs, the beneficiaries’ coinsurance is calculated as 20 percent of the submitted charge of these pharmacies. 11 The year 1988 is the most recent for which comprehensive transplant data are available. Projections for 1992 and beyond would entail a somewhat higher number of individuals, since the number of transplants per year has been increasing. Chapter l-Summary and Options ● 7

Table l—Kidney Transplant Patients’ Risk of Out-of-Pocket Liabilities for Outpatient Immunosuppressive Drugs by Insurance Status

Percentage of Post-transplant period total kidney Insurance status transplants Lessthan 1 yeara 1-3 yearsb More than 3 years Beneficiary obligations/degree of financial risk

Medicare/Medicaidc 20% No coinsurance obligations/ Same as iess than 1 year Same as iess than 1 year generally minimal out-of- (Low risk group) (Low risk group) pocket expenses (Low risk group) Medicare/private 37 to 37 to 67% if Medicare prirnary,d private Same as iess than 1 year Coinsurance obligations or insurance coverage wraps around-no but Medicare is primary iiabie for premium or fuli coinsurance obligations payer for most cost of drug (Low risk group) beneficiaries during this (Medium to high risk If Medicare secondary, period group) generally third-party (Low to medium risk coverage of drug benefit- group) coinsurance obligations (Medium risk group) Subtotai 57 to 87% Medicare only 13 to 4370 Premium and coinsurance Liable for fuii cost of drug Same as 1 to 3 years obligations (High risk group) (High risk group) (Medium risk group) Total 100% a Medicare coverage of outpatient immunosuppressive drugs ends 1 year after hospital discharge following transplant surgery. b Medicare End Stage Renal Disease (ESRD) eligibility ends 3 years after the date of transplant surgery (see figure 1). c Some Medicaid programs have dollar limits and limits on number of scripts, which would affect adequacy of coverage of outpatient immunosuppresive drugs for these recipients. d Medicare is the mandatory seondary payer for 18 months after an ESRD beneficiary becomes eligible for the program. About half ofkidney transplant recipients undergo the procedure within their first year of eligibility. Thus, most recipients with private insurance have Medicare as secondary payer for at least part of their first post-transplant year. Few, however, have primary private insurance beyond that year. SOURCE: Office of Technology Assessment, 1991, based on data from the Health Care Financing Administration (17) and Battelle Human Affairs Research Centers (7). effect of expanding Medicare’s coverage of outpa- although these individuals are vulnerable to losing tient immunosuppressives will be to shift financing insurance if they change jobs. For most individuals from other sources to Medicare. who have no private insurance and are ineligible for Medicaid, however, the loss of Medicare eligibility The remaining Medicare transplant recipients means the loss of all health care coverage. These (between 13 and 43 percent, or approximately 1,000 recipients, as well as those who lose their private to 3,600 recipients in 1988) have no insurance other insurance due to job changes or other factors, maybe than Medicare. These individuals are at high risk of unable to obtain new insurance due to their preex- financial strain, because they must usually pay the isting health conditions. If they are able to purchase full cost of the drug after Medicare’s l-year coverage insurance, the premium cost may be very high. period ends. Extending Medicare’s coverage would alleviate most of the financial burden presently experienced by these patients, although they would Medicare’s outpatient drug coverage policy can- still be obligated for the 20 percent coinsurance for not readily ease the financial burden of this group, the drugs. since these individuals are no longer Medicare beneficiaries. Like other persons with recurrent or Also financially vulnerable are those kidney chronic health conditions, transplant recipients may transplant recipients who are neither elderly nor have great difficulty obtaining insurance to cover disabled and who thus become ineligible for Medi- their anticipated high future health care costs. The care 3 years after their transplant. Some of these solution to this problem may lie in broader health patients are eligible for Medicaid. Others have care reforms than can be addressed by Medicare continuing private insurance that covers the drugs, alone. 8 . Outpatient Immunosuppressive Drugs Under Medicare

Table 2—Factors Influencing Future Medicare Expenditures for Immunosuppressive Drug Therapy

Affects Medicare expenditures under: Current Coverage Likely effects on policy expansion Medicare expenditures Factors influencing the number of beneficiaries and demand for drugs: Increase in nonrenal transplants and Medicare coverage of these procedures...... J J ‘r Coverage policy changes by other third-party payers...... J T or J Change in mix of patients receiving transplants...... J 1’ or— Limited supply of living organs to match existing and future demands for transplants...... J J — Change in provider prescribing and patient demand if coverage of immunosuppressives is expanded...... J T Factors influencing cost of drug and overaii expenditures: Development of new immunosuppressive drug products and protocols...... \ J T or J Expiration of cydosporine patent in 1995...... J ‘T or -J Expanded prophylactic use of OKT-3...... J ‘r Increased patient compliance with extended Medicare drug coverage resulting in fewer organ failures and hospitalizations...... J L Additional administrative costs for monitoring drug coverage...... J T Pressure to expand coverage to outpatient nonimmunosuppressive prescription drugs required by transplant recipients...... J T KEY: ~ = increase expenditures; ~ = decrease expenditures; — _ no significant effect. SOURCE: Office of Technology Assessment, 1991.

MEDICARE EXPENDITURES FOR immunosuppressives. Second, by law Medicare is the secondary payer for the first 18 months of a IMMUNOSUPPRESSIVE DRUGS patient’s eligibility under the ESRD program, which can overlap with a recipient’s first year on outpatient Medicare does not currently play a major role in immunosuppressives. Kidney transplants account financing post-transplant immunosuppressive ther- for more than 95 percent of Medicare-covered apy. OTA found that at present, Medicare pays for transplantations, and approximately 37 to 67 percent immunosuppressive drugs for only about 19 percent of Medicare-covered kidney transplant recipients of the functioning graft recipients with Medicare have private insurance during this 18-month period coverage and for only about 13 percent of all U.S. (7,17). patients with functioning grafts. Furthermore, since the Medicare program pays for at most 80 percent of Over time, factors such as FDA approval of new the cost of the drugs it covers, actual program products, generic alternatives to existing drugs, and outlays are an even smaller proportion of total U.S. changes in how immunosuppressive drugs are used drug outlay than these figures would imply. OTA could result in either declining or increasing costs of estimates that the Medicare program currently immunosuppressive therapy. Such changes could spends roughly $20 to $30 million per year on influence Medicare outlays in the future even if no outpatient immunosuppressive drugs, compared with change in policy is made. Other changes in the total annual U.S. spending (including out-of-pocket number of eligible beneficiaries and the cost of expenses) of approximately $185 to $280 million immunosuppressive drugs could come about as a (see ch. 5). result of system responses to any expansion in Medicare drug coverage. The factors influencing This small proportion is due to two factors. First these changes and their likely effects on Medicare is Medicare’s l-year limit on coverage of outpatient expenditures aressummarized in table 2. Chapter Summary and Options ● 9

ISSUES AND OPTIONS Table 3—Medicare Policy Options for Outpatient Immunosuppressive Drugs

Even without any changes in Medicare policy, it Coverage options: appears that overall coverage through private and Option 1: Extend or eliminate the current l-year limit on public insurers is sufficient to ensure that many outpatient immunosuppressives for Medicare beneficiaries with a Medicare-covered transplant. Medicare beneficiaries receive outpatient immuno- Option 2: Extend coverage for outpatient immunosuppressive suppressive drug therapy for the first few years. A drugs to Medicare beneficiaries whose transplant was substantial minority, however are at high risk of not covered by Medicare. Option 3: If coverage is extended, include preexisting as well as inadequate financial access, because they have only new transplant recipients with functioning grafts. Medicare insurance and may suffer financial hard- Payment options: ship in obtaining drugs after Medicare’s l-year drug Option 4: Apply Medicare secondary payer requirements to coverage period ends. In addition, in the long term, outpatient immunosuppressive drug benefits. Option 5: Require nonhospital pharmacies to accept assignment many other Medicare beneficiaries who had addi- for outpatient immunosuppressive drugs sold to tional coverage at one time may find it difficult to Medicare beneficiaries. afford immunosuppressive drugs. Option 6: Reduce or eliminate the coinsurance requirement for outpatient immunosuppressive drugs. Option 7: Change the method of paying for outpatient Congress could choose not to change Medicare immunosuppressive drugs. policies regarding outpatient immunosuppressive SOURCE: Office of Technology Assessment, 1991. drug therapy. Alternatively, Congress could change either coverage or payment policy in any of a Extending the l-year limit by a specified number number of ways (table 3). The following section of years addresses these concerns in a limited way. discusses seven options, which could be imple- Eliminating the l-year limit may be more effective, mented either independently or in combination. since it reduces the possibility of continued exten- sive out-of-pocket expenses for immunosuppres- Option 1: Extend the current Medicare limit sive for all Medicare-covered transplant recipients. on outpatient immunosuppressives past one Moreover, eliminating the limit may more effec- year. tively counteract any bias that exists in patient selection due to inability to pay for irnmunosuppres- Option IA: Extend the limit by a specified number sives, thus further enhancing the equity of access to of years (e.g., to cover up to 3 years after transplants. Expanding immunosuppressive cover- hospital discharge). age will not have much effect on the actual number of transplants performed, because the number of Option IB: Eliminate the limit completely. transplants is constrained by the number of suitable There are two basic goals of coverage expansion organs available. of outpatient immunosuppressive drugs: 1) ensuring accessibility to outpatient immunosuppressive drugs Coverage expansion will almost certainly raise with adequate financial protection to the beneficiary, Medicare expenditures, although there will be some and 2) assuring equal access to transplantation. For small offsetting savings from averted hospitaliza- those Medicare patients without additional coverage tions and returns to dialysis. The increase in (an estimated 13 to 43 percent), financial inability to expenditures would be less with time-limited than obtain immunosuppressive drugs may sometimes with indefinite coverage. The benefits, however, lead to failure of the transplanted organ and a return would be much less as well. to dialysis (for kidney transplant recipients) or death The overall shift in financing from other sources (for recipients of other organs). Expanding Medicare to Medicare that would occur if coverage were coverage for immunosuppressive drugs would ease expanded is a substantial and legitimate concern. An the financial burden for those beneficiaries with estimated 57 to 87 percent of Medicare transplant inadequate insurance coverage and might improve recipients have some kind of public or private patient adherence to therapy. A secondary effect insurance in addition to Medicare that currently pays might be that of enhancing “equitable access to for their immunosuppressive drugs. transplants, by reducing the chance that a patient will forgo the opportunity for a transplant (or not be Even with unlimited coverage expansion under referred for one) due to financial concerns. this option, approximately 50 percent of kidney 10 . Outpatient Immunosuppressive Drugs Under Medicare transplant recipients would still lose Medicare- who receive their graft in or after the year in which based immunosuppressive drug coverage after 3 the new coverage policy is made effective. years, when their ESRD-linked Medicare entitlement expires (17). For these patients, an additional Alternatively, a new coverage extension could policy issue is whether they should continue to be pertain to all existing Medicare-covered transplant eligible for Medicare Part B in order to receive recipients with a functioning graft as well. OTA Medicare coverage of irnmunosuppressives. Many estimates that the cumulative total of living functional- of these patients may find it difficult to purchase graft recipients in the United States was more than drugs (or insurance coverage) after losing Medicare 46,000 persons in 1988, of which about two-thirds eligibility. Permitting nondisabled transplant recipi- had Medicare coverage (see ch. 2). The total number ents to retain Medicare eligibility would afford these of Medicare-covered transplant recipients was over individuals much greater protection. However, it 31,000 persons in 1988 and is estimated to be over would also confer benefits not available to other 36,000 in 1991. chronically ill individuals. “Grandfathering in” all Medicare beneficiaries Option 2: Extend coverage for outpatient with functioning grafts would assure the same immunosuppressive drugs to Medicare bene- coverage policy and similar financial protection to ficiaries whose transplant was not covered Medicare transplant recipients regardless of when by Medicare. the transplant was performed. It would also increase the initial pool of recipients requiring Medicare At present, only individuals whose organ trans- payment for irnmunosuppressives more than five- plant procedure was covered by Medicare are fold, resulting in corresponding increases to Medi- eligible for outpatient drug coverage. Some other care expenditures (table 4). If a grandfather clause organ transplant recipients, however, are also Medi- were combined with elimination of the current care beneficiaries. This group of patients encom- l-year limit on coverage, Medicare would cover and passes recipients of pancreas, heart/lung, lung, and pay for immunosuppressive drugs for approximately some heart, liver, and bone marrow transplants who 67 percent of all U.S. transplant recipients with a did not meet Medicare’s conditions for coverage. functioning graft, compared with the current esti- Although the exact number of Medicare bene- mate of 13 percent. Medicare would then have a ficiaries who fit this description is unknown, it is leading role in financing post-transplant immuno- believed to be small (17). suppressive therapy. Total Medicare-related expenditures, including beneficiary copayments, could be Extending outpatient immunosuppressive drug expected to increase from an estimated $24 to $36 coverage for the first time to these recipients would million to between $125 and $185 million (in 1988 unquestionably raise Medicare expenditures slightly. dollars) .12 However, it could further assure protection against the possibility of incurring substantial out-of-pocket Option 4: Apply Medicare secondary payer expenses for all Medicare transplant recipients requirements to outpatient immunosup- regardless of type of transplant. pressive drug benefits. Option 3: If coverage is extended past the Under the ESRD program, having Medicare as current limit, include preexisting as well as secondary payer is a mandatory requirement for the new transplant recipients. frost 18 months of eligibility .13 Medicare pays for covered services provided to ESRD beneficiaries in Under current policy, Medicare pays for outpa- this period only after any existing private insurer tient immunosuppressive drugs for approximately pays. Private insurers are not permitted to discrimi- 6,000 firstt-year transplant patients per year (see ch. nate against ESRD beneficiaries, so they may not 4). Any contemplated coverage expansion could be disenroll beneficiaries or arbitrarily change their limited to Medicare-covered transplant recipients benefits during this time. Approximately 37 to 67

12 This increase is equivalent to an increase of less than 0.5 percent of total Medicare Part B dollars. 13 The mandaroty requirement that Medicare be the secondary payer applies to disabled and ESRD beneficiaries but not to the working-aged Medicare population (many of whom have private employer-based insurance). For the latter group, Medicare is usually the primary payer regardless of any other insurance coverage, although the beneficiary can designate the private insurer as primary if he or she so chooses (37). Chapter Summary and Options . 11

Table 4-Estimated Number of Persons for Whom cies, physicians, and other sources. Hospital phar- Medicare Would Have Paid for Immunosuppressive macies serving Medicare patients must accept the Drug Therapy Based on Selected Coverage Policy Medicare cost-based payment plus the beneficiary Options 1988-90 j copayment (coinsurance and any applicable deduct- Estimated number of Personsa ible) as payment in full for the drug. Nonhospital Policy option 1988 1989 1990 suppliers are not subject to this constraint and may Retain current 1-year coverage bill beneficiaries more than the Medicare-allowed limit for drugsb...... 6,000 5,800 6,100 charge (i.e., more than the Medicare payment plus Extend/eliminate limit beneficiary copayment). (option 1) ...... 6,000 12,100 19,000 Extend/eliminate Iimit and cover all Congress could mandate that all nonhospital Medicare-covered successful suppliers accept assignment for post-transplant out- grafts (options 1 and 3)...... 31,500 35,400 40,300 a Estimated number includes only Medicare beneficiaries who have a patient irnmunosuppressive drugs. These suppliers Medicare-covered transplant procedure and for whom Medicare is the would then be required to agree to accept Medicare’s primary payer. Estimates have been rounded to nearest 100 to reflect the allowed charge as payment in full in order to degree of uncertainty in these numbers. b Numbers are based on 1987-89 Medicare transplant recipients with dispense these drugs to Medicare beneficiaries. This functioning grafts in 1989-90, respectively. The number of kidney trans- option would restrict providers’ behavior in ex- plants, while fairly constant in recent years, fell slightly from 1987 to 1988, explaining the decline in functioning graft patients shown in 1989. change for reducing beneficiaries’ financial lia- SOURCE: Office of Technology Assessment, 1991. Estimates calculated bilities. The exact extent of protection that would be by OTA based on available information from the Health Care Financing Administration and the Health Resources and Serv- afforded by this option is unclear; it depends on the ices Administration. extent to which patients purchase their drugs from nonhospital sources. percent of Medicare kidney transplant recipients Option 6: Reduce or eliminate the coinsurance have private coverage during this time (7,17). If the requirement for outpatient immunosuppres- l-year coverage limit for immunosuppressive drugs sive drugs. is eliminated, extending the mandatory secondary payer requirement to all kidney transplant recipients Expanding coverage by eliminating the l-year specific to immunosuppressive drug coverage would limit does not protect the beneficiary from coinsur- prevent a shift of financing from other sources to ance obligations. Under current policy, the patient Medicare for those patients with additional cover- must pay a coinsurance amount equal to 20 percent age. of reasonable charges (if the drug is dispensed by a nonhospital pharmacy or supplier) or 20 percent of This option could apply to all beneficiaries, not the actual submitted charge (if dispensed by a just kidney transplant recipients. However, there is hospital pharmacy). OTA estimates that average no precedent for expanding mandatory secondary coinsurance obligations were between roughly $570 payer policies to a specific service for the general and $850 per year in 1988. Payment policy could be Medicare population. Since Medicare would still be changed to recognize a higher proportion (up to 100 the primary payer for all other services provided to percent) of reasonable charges, thus reducing or the population, this provision might be difficult to eliminating the coinsurance liability. This change administer. This option is also only effective to the could be made regardless of any other changes in extent that private insurers can be prevented from coverage or payment policy. changing their enrollment and benefit packages. At present, such protection exists in law only for ESRD The unquestionable benefit of eliminating co- beneficiaries. insurance requirements for outpatient irnrnunosuppressives is that it would ease the financial obliga- Option 5: Require nonhospital pharmacies tions of beneficiaries. However, this benefit would and other suppliers to accept assignment for be achieved at the expense of Medicare. The outpatient immunosuppressive drugs. elimination of coinsurance might increase patient adherence to prescribed drug regimens and prevent Individuals requiring outpatient immunosuppres- some organ rejection episodes, with some associated sive drugs can obtain these drugs from either Medicare savings, but the magnitude of the savings hospital pharmacies or from nonhospital pharma- is probably small.

292-878 - 91 - 2 12 ● Outpatient Immunosuppressive Drugs Under Medicare

Changing coinsurance requirements for outpa- practical. Two disadvantages with moving imme- tient immunosuppressive drugs raise some issues of diately to global fees for immunosuppressive drug equitable treatment of other Medicare beneficiaries, therapy are the difficulty of paying consistently for who also must pay coinsurance for the benefits they hospital- and nonhospital-based services and the receive. For example, implementing this option potential incompatibility with any other future could result in pressure to reduce coinsurance changes in payment for ambulatory services. obligations for dialysis visits, since coinsurance expenses are higher for that treatment than for Another payment approach might be to pay for outpatient drug therapy. immunosuppressive drugs according to a fee sched- The most comprehensive alternative for reducing ule, under which the dispenser would be paid a beneficiary out-of-pocket costs would be a combina- single price per given amount of drug, regardless of tion of three options: eliminating the current l-year the type of pharmacy from which the drug was coverage limit, requiring mandatory assignment, obtained. At present, an immunosuppressive ob- and eliminating the coinsurance requirement. This tained from a hospital pharmacy is reimbursed on a approach would offer beneficiaries almost complete different basis than one dispensed by a nonhospital protection from the high cost of irnmunosuppressive pharmacy or supplier. Under this option, the actual drugs. (Increases to Medicare outlays could be amount paid could be based on a fee schedule that constrained slightly by mandating Medicare as applied uniformly across different suppliers and secondary payer.) However, this approach would accounted for factors such as drug dosage level and raise particularly strong equity issues, since it would whether the drug was a generic or a sole source afford transplant recipients a degree of financial product. protection unavailable to any other Medicare beneficiaries. Advantages to a fee schedule for immunosuppressive from Medicare’s perspective are that the Option 7: Change the method of paying for program could better control its expenditures and outpatient immunosuppressive drugs. could encourage or discourage the use of particular At present under the outpatient immunosuppres- drugs, if desired, by raising or lowering payment sive drug benefit, the drug is paid separately from the rates. A fee schedule might also confer benefits on physician visits relating to therapy management and beneficiaries by making their payments lower and from any associated hospital outpatient visit. One more predictable, particularly if this option were eventual alternative might be to bundle the various implemented in tandem with mandatory assignment. covered services together for the purposes of pay- Disadvantages to a fee schedule include the potential ment. If, as one study suggests, outpatient immunos- for establishing rates too low (discouraging techno- uppressive drugs are obtained more often from logical innovation or reducing beneficiary access) or hospital outpatient pharmacies than from retail too high (resulting in unnecessary expenditures), pharmacies (7), then a global fee with the profes- and the administrative burden of establishing appro- sional and technical components included might be priate rates and updating them frequently. Chapter 2 Overview of the Transplant Population Contents Page TRANSPLANT COVERAGE POLICY ...... + . . . 15 Medicare ...... +...... 15 Other Insurers ...... 15 NUMBER OF TRANSPLANTS ...... 17 TRANSPLANT RECIPIENTS ...... 18 Characteristics ...... 18 Number of Functioning Graft Patients ...... 18

Tables Table Page 5. Medicare Coverage Policy for Selected Transplant Procedures...... 16 6. Percentage of Medicaid programs and private Insurance Plans Covering Transplants . . . . . 16 7. Number of Transplants Performed: U.S. Total, Medicine-Covered, and Medicaid-Covered, 1988 ...... 17 8. Number of U.S. Transplants Performed and percent Change, 1984-89 ...... 18 9. Characteristics of Transplant Recipients, 1989 ...... 19 10. Estimated Number of U.S. Transplant Recipients With a Functioning Graft and With Medicare Coverage, 1988 ...... +. ..+...... 20 Chapter 2 Overview of the Transplant Population

The demand for outpatient post-transplant im- entitled to Medicare as a result of this need.4 munosuppressive drugs depends heavily on the Medicare ESRD-linked entitlement for kidney trans- number of people receiving organ transplants. Since plant beneficiaries ends 3 years after the date of January 1987, Medicare has covered these drugs for transplant surgery (42 U. S. C. A.~426-1). patients who received a Medicare-covered transplant (Public Law 99-509). This chapter provides an overview of existing coverage policy for transplants, Other Insurers the number of U.S. and Medicare-covered transplant recipients, and transplant patient characteristics. It State Medicaid programs’ and private insurers’ then presents estimates of the number of living policies concerning organ transplants are similar to transplant patients with a functioning graft-an Medicare’s in many instances. For example, kidney, essential number in determining how many persons liver, and bone marrow transplants are covered by require immunosuppressives. over 90 percent of State Medicaid programs (table 6). Similarly, kidney transplants are covered by almost all private insurers; heart and liver trans- TRANSPLANT COVERAGE plants are covered by many Blue Cross/Blue Shield POLICY plans and commercial insurers. As of the rnid-1980s, health maintenance organizations’ coverage policies also generally appeared to resemble those of the Medicare Medicare program (22). Medicare restricts its coverage of transplants to certain organs and, to some degree, certain catego- Many private insurers and Medicaid programs ries of patients. At present, Medicare covers heart, also cover transplant procedures currently not cov- kidney, liver, and bone marrow transplants (table 5) ered by Medicare. For example, more than 70 (54).1 2 Liver and bone marrow transplants are percent of the Blue Cross/Blue Shield plans and a restricted to Medicare beneficiaries with certain comparable percentage of commercial insurers cov- medical conditions. At this time, Medicare does not ered heart/lung transplants even in 1985 (8,22). cover heart/hmg, lung, or pancreas transplants, Almost 25 States cover heart/lung transplants under regardless of the patient’s condition.3 Medicaid (317). Moreover, all evidence points to continued expansion in coverage of transplants by Medicare coverage of kidney transplants is statu- States and private insurers (27). torily mandated, based on Medicare eligibility through the End-Stage Renal Disease (ESRD) Pro- Thus, Medicare’s coverage policy of nonrenal gram. Whereas other patients must already be transplants is comparatively restrictive. Medicare’s entitled to Medicare (by being elderly or disabled) in role in transplant coverage is also somewhat con- order to receive a Medicare-covered transplant, any strained because of the age limit for transplant; patient who needs kidney dialysis or a kidney people 65 years and over are not generally consid- transplant due to chronic renal failure may be ered acceptable candidates at present.

IMe&cMe alSO covers cornea and skin transplants. These tissue transplant procedures were not included in thk study because they do not usuMY require immunosuppressive drugs. zAlthoughliver ~msplmts forc~~en~ve been ~over~ sirlce 1984, coverage for ad~ts was CIrlly re~ntly extend~ (56 FR 15006). Adtit coverage is retroactive to Ma.mh 1990. aMe&c~e’s Paynent policy for transplant procedures is summtimd iII app. B. ds~chpatient~ me entitled t. M~cae if they me My or Cwnfly &W~ (or the dependent of a worker who is so iI’Isu.red) under the social seCUrity program. Entitlement normally begins on thefmt day of the third month after the patient is placed on kidney dialysis, or thefmt day of the month in which the patient entered the hospital in preparation for a kidney transplant (42CFR 406.20).

–15- lb ● Outpatient Immunosuppressive Drugs Under lWedicare

Table 5—Medicare Coverage Policy for Selected Transplant Proceduresa

Transplant procedure Effective date Coverage restrictionskope Kidney ...... July l,1973 Coverage is tied to patient eligibility under Medicare’s End-Stage Renal Disease Program. Coverage can begin the month of hospitalization for the transplant. Coverage ends 36 months after the date of transplant surgery unless the recipient is also elderly or disabled. Bone marro@ Allogeneic ...... Aug. 1,1978 Covered for treatment of leukemia or aplastic anemia. June3,1985 Covered for treatment of severe combined immunodeficiency disease or Wlskott- Aldrich syndrome. Autologous ...... Apr.28,1989 Covered for patients with various specified conditions. Heart ...... November1979 Tentatively covered for transplants performed at Stanford University, pending development of final criteria for transplant. June 13,1980 Covered only for transplant and treatment performed at Stanford University and University of Arizona Medical Center on or before June 12, 1980, or on transplant candidates accepted on or before June 12, 1980. Future transplants not revered. Oct. 17,1986 Covered if performed according to specific protocols in selected U.S. heart transplant centers.c Liver ...... Feb. 9,1984 Covered for Medicare recipients age 17 and under with specified conditions. Mar.8,1990d Covered for adults with specified renditions. Both children’s and adults’ liver transplants must be performed in Medicare-designated liver transplant centers to be revered. Heart./lung ...... Not covered. Lung ...... Not covered. Pancreas ...... Not covered. aSkin andcornealtransplants arealsocovered by Medicare. Both procedures were accepted medical practi~ atthetime Medicare was implemented and thus required no specific Iatercoverage decision. Allothertransplants arecoveredonlywhen Medicare has determined that they are “reasonable and necessary.” bAllogeneic bone marrow transplants are those in which the marrow is obtained from a healthy donor.Autologous transplants, in Contrast, use the Patient’s own previously extracted and treated bone marrow. C AS of January 1991, there were 40 approved heart transplant centers in the United States. dAdult [ivertransplant final r~ulations Wnotappear until Apr. 12, 1991, butcoveragewas made retroactive to Mar. 8, 1990 (the date the Proposal r%ulations were first published).

SOURCE: Health Care Financing Administration, Bureau of Policy Developmentf Division of Dialysis and Transplant Payment Policy, 1991.

Table 6-Percentage of Medicaid Programs and Private Insurance Plans Covering Transplants

Private insurers Health Medicaid Blue Cross/ Commercial maintenance programsa Blue Shield insurersb organizations Transplant procedure (1990) (1985) (1985) (1985) (Percent of States) (Percent of plans) Heart ...... 78% 89Y0 85?40 33!Z0 Kidney ...... 98 100 97 97 Liver ...... 94 91 80 81 Hearfflung ...... 45 82 69 25 Lung ...... 29 NA NA NA Pancreas ...... 24 49 57 19 Bone marrow ...... 92 NA NA 90 ABBREVIATIONS: NA = not available. aper~ntages include the District of Columbia. bBaSed on a survey of 65 commercial insurers. cBased on a survey of 120 members of the Group Health Association of America, to which 67 members responded. SOURCES: Intergovernmental Health Policy Project, George Washington University, Washington, DC, September 1990; R. Block, Blue Cross and Blue Shield Association, Chicago, IL, personal communication, Mar. 29, 1991; and F.J. Hellinger, “Status of Insurance Coverage for Organ Transplants in the United States: A Review of Recent Surveys,” Int. J. Txtmology Assessment in Health Care 2:563-570, 1986. Chapter 24verview of the Transplant Population . 17

Table 7—Number of Transplants Performed: U.S. Total, Medicare-Covered, and Medicaid-Covered, 1988

Medicare-oovered Media”d-covered a Percent of Percent of Transplant prooedure Us. total Number Us. totalb Number U.S. total Heart ...... 1,647 1 17’ 7.IYO 94 5.7?40 Kidney ...... 9,1 23d 8,145” 89.3 273 3.0 Liver ...... 1,680 7 0.4 120 7.1 Heart/lungQ ...... 74 0 0.0 5.0 6.8 Lung9 ...... 31 0 0.0 NA NA Pancreas9 ...... 243 0 0.0 9 3.7 Bone marred...... 1,908 55 2.9 208 10.3 Total ...... 14.706 8.324 56.6 709 4.8 ABBREVIATIONS: NA = Not available. aBased on Intergovernmental Health Policy Project Organ Transplant Survey, 1988. Data reported is primarily for State fiscal year 1987. bDataprovid~ byu.s. Department of Health and Human Services, Public Health Services, Health Resources and Services Administration, Division of Or9an Transplantation, 1991. cBased on prmp=tive payment Assessment Commission analysis using inpatient hospital data. dCalWlations of the total number of kidney transplants vary depending on the source. According to the U.S. Renal Data System, the 1988 total is 8,923. %ased on data from Office of Research and Demonstrations, U.S. Health Care Financing Administration (HCFA). ~hese numbers reflect Iivertransplants for children under the age of 18. Coverage for adults was only recently extended. HCFA estimates that Medicare will cover approximately 19 percent (or over 400) of all U.S. liver transplants in 1994 (56 FR 12006). 9Medicare does not cover these procedures. hBased on International ~ne Marrow Transplant Registry data on allogeneic and Syngeneic bone marrow transplants. The total does not include Illlnlber Of autologous transplants, of which approximately 1,200 were reported worldw”de in 1987. SOURCE: Office of Technology Assessment, 1991.

NUMBER OF TRANSPLANTS The number of nonrenal transplants (i.e., of organs other than kidneys) performed each year has In 1988, nearly 15,000 organ transplants were increased dramatically over time (table 8). Average performed in the United States (table 7).5 Kidney annual growth rates from 1984 to 1989 were 48 transplants were the most frequently performed percent for liver, 37 percent for heart, 37 percent for transplant procedures, accounting for more than 60 pancreas, and 25 percent for heart/hmg transplants percent of the U.S. total. (5). The rapid growth was a product of major advances that have continually taken place in all Medicare covered an overwhelming majority transplant-related disciplines-immunology, histo- (nearly 90 percent) of U.S. kidney transplants in compatibility, surgery, organ procurement, organ 1988.6 In contrast, Medicare covered only 7 percent preservation, and immunosuppression. of heart transplants, 3 percent of allogeneic bone marrow transplants, and less than 1 percent of liver transplants (5,17,27,62). Nonetheless, because kid- These growth rates might have been even greater neys were the most commonly performed trans- if the supply of donated organs had been sufficient plants, Medicare covered a majority (57 percent) of to meet the needs of those waiting for transplant. In the Nation’s transplant procedures overall in 1988. 1989, for example, 31 percent of the patients waiting for a heart transplant died before a suitable organ State Medicaid programs sometimes cover trans- became available (60). Similarly, the number of plants that Medicare does not, but Medicaid-covered available kidney organs is sufficient to provide procedures still account for less than 5 percent of the transplants for only about 60 percent of persons national total of transplantations. Thus, Medicare is currently on the waiting list. The constrained supply a major payer of kidney transplants only; Medicaid’s of suitable kidneys explains the relatively small role is minor. Most other organ transplants are paid increase in kidney transplants, which grew by only for by private insurers. 5 percent per year from 1984 to 1989.

s~~ to~ dm~ ~Ot in~lU& s~ ~~d cornea ~anspl~ts because the~ proc~~es do not rqfie immunosuppressive tig therapy. It dSO d~s nOt include the U.S. number for autologous bone marrow transplants, which was was not available. This number is not critical since these recipients do not usually require immunosuppressives. Recent estimates suggest that appmxhnately 1,200 such transplants were performed worldwide (l). 6Althou@ M~iC-e covem 89 percent of U.S. ~dney ~ansp~nts, it ac~ly pays for less ~ so pe~ent of these t,fall.spkUltS, due tO the malldatOry requirement that Medicwe be the secondary payer for the first 18 months of eligibility of any End-Stage Renal Disease beneficiary who also has private insurance (17). la ● Outpatient Immunosuppressive Drugs Under Medicare

Table 8—Number of U.S. Transplants Performed and Percent Change, 1984-89

Transplant procedure Year Heart Kidney Liver Heart/lung Lung Pancreas Bone rnarrovF Total 1984 ...... 346 6,968 308 22 0 87 1,000 8,731 1985 ...... 719 7,695 602 30 2 130 1,297 11,475 1986 ...... 1,368 8,975 924 45 0 140 1,578 13,030 1987 ...... 1,512 8,967 1,182 41 11 180 1,659 13,552 1988 ...... 1,647 9,123 1,680 74 31 243 1,908 14,706 1989 ...... 1,673 8,890 2,160 67 89 413 2,194 15,486 Percent change, 1984-89 ...... 383.5% 27.6?’. 601.3Y0 204.5’Yo NA 374.7?40 119.470 77.470 Average annual percent change ...... 37.lYO 5.070 47.67. 24.9Y0 NA 36.5Y0 17.O~o 12.69’o ABBREVIATIONS: NA=notapplicable. aBased on international Bone Marrow Transplant Registry data on allogeneic and syngeneic bone marrow transplants. The 1988 and 1989 numbers are estimated based on a 15-percent increase each year. SOURCE: U.S. Department of Health and Human Services, Public Health Services, Health Resources and Services Administration, Ditision of Organ Transplantation, 1991.

TRANSPLANT RECIPIENTS of lung transplants survived that long. The l-year graft survival rate for cadaveric-donor kidney transplants, the most common type of organ transplant, Characteristics was 78 percent, with 52 percent of such grafts Transplants are usually performed on relatively surviving at least 5 years. One- and five-year survival rates for living-donor kidneys are somewhat young patients (table 9). The average patient age at higher (88 and 72 percent, respectively). Patient the time of transplant ranged from 25 years for bone survival rates are similar to graft survival rates, marrow transplant recipients to 47 years for heart except for kidney and bone marrow recipients, who transplant recipients between October 1987 and 7 can sometimes survive with alternative treatments if December 1989 (5,62). Across all types of trans- the graft fails. plants, the majority of recipients were white. The patient’s condition at the time of transplant Number of Functioning Graft Patients varies by transplant type. A majority of heart, To understand the implications of changing Medi- heart/lung, and lung transplants in 1989 occurred in care’s policies regarding immunosuppressive drugs, patients who were reported to be homebound. In one must first determine the number of living contrast, a substantial proportion of individuals transplant recipients whose graft is still functional. receiving kidney, pancreas, and bone marrow trans- Of the nearly 15,000 transplant recipients in 1988, plants were working or going to school Ml-time OTA estimates that approximately 73 percent, or (5,62). Repeat transplants occurred rarely, except for 11,000 recipients, were living in 1989 with a kidney and liver transplants.8 functioning graft.9 The cumulative total of living Most transplanted organs function for at least a functional-graft patients in the United States was year, but graft survival rates vary markedly by type estimated to be more than 46,000 persons in 1988, of of organ. For a 1987-89 cohort of transplant recipi- which 66 percent have Medicare coverage (table 10). ents, over 82 percent of heart grafts survived 1 year Kidney transplant recipients account for more than after the transplant (60). In contrast, only 57 percent 95 percent of Medicare-covered transplants.

THowever, the “age ~~~~ Cntefi Mve ken expanding. me COmmOn upper limit for heart transplant patientS fOr example, is reported to have increased from 50 to 55 years of age (39). 8For ~ more detail~ description of patient socioeconomic and demographics, see references 57 ~d 60. me estimated number of recipients living in 1989 with a functioning graft was calculated by applying l-year survival rates to the pool of persons who received grafts in 1988. Chapter 2-Overview of the Transplant Population . 19

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Table 10-Estimated Number of U.S. Transplant Recipients With a Functioning Graft and With Medicare Coverage, 1988

Recipients with Medicare coveragea As percent of Organ Us. total Number U.S. total Kidney ...... 39,400 30,400b 77.2?40 Heart ...... 3,075 220 7.1 Liver ...... 1,660 10’ 0.4 Hearfflung ...... 65 d d Lung ...... 10 d d Pancreas ...... 365 d d Bone marrow...... 2,030 55 2.7 Total ...... 46,605 30,685 65.8 alncludesoniythoseforwhom Medicareisassumedtobethe primarypayer.Medicare istheseccmdarypayerforsome kidney recipientswith Medicarecoverage. b~istotal is ~%d on the f inding that ~ per~nt of kidney transplant r~ipients continue to receive Medicare benef its past the 3-year limit of End Stage Renal Disease-based Medicare eligibility. ‘These numbers include liver transplants for children under the age of 18. Coverage for adults was only recently extended (56 FR 15006). U.S. Health Care Financing Administration estimates that Medicare will cover approximately 19 percent (orover400) of all U.S. liver transplants in 1994 compared with less than 3 percent of U.S. liver transplants covered by Medicare in 1990. dMedi=re Cjoes not cover these transplant pm~dures. SOURCE: Office of Technology Assessment, 1991. Calculations based on data provided byU.S. Department of Health and Human Services, Public Health Services, Health Resources and Services Administration, Division of Organ Transplantation; and Health Care Financing Administration, Office of Research and Demonstration.

The percentage of recipients covered by Medicare kidney transplant recipients with a functioning graft is high because of Medicare’s ESRD entitlement continue to receive Medicare benefits past the 3-year program, which continues to cover nearly all of the limit of ESRD-based Medicare eligibility (17). U.S. kidney transplant recipients for 3 years after the Disability, not age, is usually the criterion under day of the transplant surgery. The U.S. Health Care which these recipients continue to qualify for Financing Administration found that 50 percent of Medicare. Chapter 3 Immunosuppressive Drug Therapies .

Contents Page IMMUNOSUPPRESSIVE DRUG PROTOCOLS ...... q ...... 23 C.omponents of Immunosuppressive ~erapy...... do. ... +...... + ...... +. ..OO 23 Variation inDrug Treatment ~otocols ...... 24 COSTOF IMMUNOSUPPRESSIVE THERApY ...... 25

Tables Table Page 11. U.S. Food and Drug Adminisfiation Approval Status andMedicMe C.overageof Post-Transplant Immunosup~essive ~gs ...... 24 12. Typical Immunosuppressive Drug Protocols for Kidney Transplant Patients ...... 24 13. Percentage ofKidney Transpl~t Recipients Receiving CyclospoMe, 1984-89 ...... 25 14. Percentage ofTransplant Recipients Receiving Specific Immunosuppressive Drugs by Drug Type, 1987-90 ...... +.. ...+.,. +.. 26 15. An.nual Drug Costs for Immunosuppressive Protocols ofKidney Transplant Patients, 1988 ...... ”...... ”.”.”.. . 27 Chapter 3 Immunosuppressive Drug Therapies

This chapter reviews the immunosuppressive However, it has also been used prophylactica.lly (i.e., agents currently used to prevent organ rejectionl and to prevent organ rejection) by some treatment describes the variation in drug treatment regimens programs as a replacement for ATG (15). To date, used by transplant recipients. It then discusses the prophylactic OKT-3 therapy has been administered costs associated with various immunosuppressive to inpatients, but outpatient administration is not drug therapies. beyond the reahn of possibility. IMMUNOSUPPRESSIVE DRUG Antilymphocyte globulin (ALG), a new immunosuppressive developed at the University of Minne- PROTOCOLS sota, is not yet approved for general use by the FDA. Components of Immunosuppressive Therapy Like ATG, ALG is used primarily to reverse particularly severe rejection episodes, but it has also Despite the slow but relatively steady develop- been administered routinely as part of a standard ment of immunosuppressive products, the number of immunosuppressive protocol. drugs is still few. Presently, only four drugs are approved by the U.S. Food and Drug Administration Another promising new drug is FK-506, manufac- (FDA) specifically for post-transplant irnmunosup- tured by a Japanese firm. FK-506 is a powerfkl and pression: azathioprine, cyclosporine, antithymocyte selective immunosuppressive agent with a mode of globulin (ATG), and muromonab CD3 (OKT-3) action similar to that of cyclosporine (7,33,47,63). (table 11) (55,56).2 All four of these drugs are The most appropriate place of FK-506 in the sole-source (i.e., each is produced by only one post-transplant immunosuppressive drug regimen is manufacturer). Prednisone, an adrenal corticoster- still a matter of study and debate. Further investiga- oid, is also usually aWstered to patients as part tion is necessary to detetie the toxicity, potential of the immunosuppressive drug regimen and is benefits, and most appropriate clinical application covered under Medicare for this purpose. when compared with cyclosporine (16,45). Early approaches to long-term chemical irmmmo- At least two other potential immunosuppressive suppression in transplant recipients included a drugs are also under development. One new drug combination of azathioprine (or, after its FDA under testing is 15-deoxyspergualin (also known as approval in 1981, ATG) a.ndprednisone. Cyclosporine- NKT-01), a relative of the antitumor antibiotic based protocols, introduced into general use in 1984, spergualin. NKT-01 has been shown to prolong the rapidly replaced these approaches to become the graft survival of organ and tissue transplants in mainstay of immunosuppressive therapy in patients rodents (19,44) and is currently in Phase I clinical who receive organ grafts. The incidence and success trials in humans (14). Another new compound, rates of heart, heart/hmg, and lung transplants rapamycin, has also shown encouraging potential in increased particularly dramatically in the era follow- the laboratory but has not yet been tested in humans ing FDA approval of cyclosporine (58). For kidney (24). transplants, cyclosporine use apparently also reduced mortality and morbidity to levels significantly All current and potential immunosuppressive lower than the conventional protocols (7,23,29,43). drugs have associated side effects and complications. For example, despite its major contribution to Orthoclone OKT-3 (the brand name of muro- the improved outcome of human organ transplanta- monab CD3, a monoclinal antibody) is a relatively tion over the past decade, cyclosporine is nephro- recent addition to the roster of immunosuppressive toxic; it can cause impaired kidney fiction in both agents. OKT-3 is approved by the FDA for the kidney transplant recipients and in patients with treatment of acute rejection of transplanted organs. normal kidneys who have received transplants of

l~mosuppression is used for other indications as well, such as rheumatoid arthritis and various other immune disorders. ~ese uses ~ not discussed in this Report. ~or a review of the historical developments in clinical and experimental immunosuppression, see references 41 and 46.

–23– 24 ● Outpatient Immunosuppressive Drugs Under iUedicare

Table 11—U.S. Food and Drug Administration (FDA) Approval Status and Medicare Coverage of Post-Transplant Immunosuppressive Drugs

FDA approval date Medicare Drug Brand or common name Manufacturer/developer (form of administration) coverage Azathioprine...... Imuran Burroughs Wellmme Mar. 20, 1968 (oral) Yes July 19, 1974 (IV) Antithymocyte globulin...... Atgam Upjohn NOV. 17, 1981 (IV) Yes Cyclosporine ...... Sandimmune Sandoz NOV. 14, 1983 (oral and IV) Yes Muromonab CD3 ...... OrthocJone OKT-3 Ortho June 19, 1986 (IV) Yes Prednisone ...... No brand name Multiple sources Multiple forms approved Yes Antilymphocyte globulin. . . . . ALG University of Minnesota Not approved No Macrolide antibiotic ...... FK-506 Fujisawa Not approved No ABBREVIATION: IV - intravenous. SOURCE: Office of Technology Assessment, 1991.

Table 12—Typical Immunosuppressive Drug Protocols for Kidney Transplant Patients

Setting and protocol phase Inpatient initial Outpatient Drug protocol and rejection phases maintenance phase Traditional therapy ...... PRED + AZA PRED + AZA Augmented with ALG or ATG ... , ...... PRED + AZA + ALG/ATG PRED + AZA Cyclosporine therapy’ Double-drug ...... CSA + PRED CSA + PRED Triple-drug (with ALG, ATG, or OKT-3) ...... PRED + AZA + ALG/ATG/OKT-3 CSA + PRED + AZA Quadruple-drug cyclosporine therapy...... CSA + PRED + AZA + ALG CSA + PRED + AZA ABBREVIATIONS: PRED=i Prednisone; AZA _Azathioprine; ALG/ATG _ Anti lymphocyte orantithymocyte globulin; CSA = Cyclosporine; OKT-3 - Orthodone OUT-3. aThe terms double, triple, and quadruple drug therapy refer here to the number of drugs administered in the initial or inpatientsta9e. SOURCE: Battelle Human Affairs Research Centers, Seattle, WA, Cost and Outcome Ana/ysis of Kkfney Transp/antatioru Tbe hnpkafions of Initial knrmmosuppressive Protocol and Diabetes, under agreement with the Health Care Financing Administration Cooperative Agreement 14-C-985ti]0, August 1989.

other organs (7,42). Hypertension (high blood pres- States and abroad. The mainstay traditional therapy sure) after heart transplant is another frequently consisted of a combination of azathioprine and observed complication of cyclosporine-induced im- prednisone (table 12). munosuppression (40). With the introduction of cyclosporine, a variety of Many of these side effects are dose-related and new protocols followed in an effort to maximize can be minimized through the use of multiple-drug immunosuppression while minimizing side effects approaches to irnrnunosuppression that permit lower such as nephrotoxicity and susceptibility to infec- doses of individual drugs. Indeed, because of the nephrotoxicity associated with cyclosporine, lower tion. The different preferred drug combinations vary across transplant centers and across individual dosages of various immunosuppressive agents are patients within any particular center (7,21). Because being used in increasingly complicated immunosup- the therapy is tailored to the patient, the mix and pressive protocols. dosages of drugs also vary over time in any Vari&”on in Drug Treatment Protocols particular patient, depending on the treatment phase and the patient’s physiologic reactions to the drugs. Until the clinical introduction of cyclosporine, immunosuppressive drug protocols for kidney trans- The drugs administered to a given patient differ plants, the most cornrnon transplant procedure, were according to three possible immunosuppressive similar across transplant programs in the United treatment phases:3

3For fifiey tr~plant recipients, chronic renal dysfunction may require yet a different protocol (7). Chapter .%lmmunosuppressive Drug Therapies . 25

● The induction phase consists of approximately Table 13-Percentage of Kidney Transplant the first 6 weeks of use of immunosuppressive Recipients Receiving Cyclosporine, 1984-89 drugs during the immediate, post-transplant period. Treatment is usually on an inpatient Source of graft basis during this phase, since it is the time when Year Living donor Cadaveric donor the patient’s status is most uncertain. 1984 ...... 38’Yo 730/0 ● Maintenance treatment, which is usually ad- 1985 ...... 53 84 1986 ...... 68 90 ministered on outpatient basis, is initiated after 1987 ...... 78 92 the patient’s medical condition has stabilized 1988 ...... 80 91 and when the organ function is normal or 1989 ...... 87 93 near-normal. SOURCE: Health Care Financing Administration, Office of Research and Demonstrations, Division of Beneficiary Studies, 1990. ● Therapy during acute organ rejection, which sometimes occurs despite maintenance ther- may have tended to keep patients with older apy, is usually a short phase requiring higher transplants on their original regimens. Moreover, dosages and, often, different drugs while the because nephrotoxicity is the most significant side patient is hospitalized (7). effect of cyclosporine, traditional therapies may be For kidney transplants, cyclosporine has in- warranted for some kidney transplant recipients. creased the complexity of transplant recipient man- Despite the predominance of cyclosporine as the agement; distinguishing between a rejection episode primary imrnunosuppressive agent, azathioprine and and nephrotoxicity is quite obviously confhsing on prednisone remain stable components of both inpa- the one hand and critical on the other. tient and outpatient irnmunosuppression (table 14). The improved effectiveness of cyclosporine- These drugs continue to be important adjuncts to based protocols over traditional therapy is reflected cyclosporine in most of the therapies currently in in the dramatic shift in the immunosuppressive use. management of kidney transplant recipients since FDA approval of cyclosporine in late 1983. From COST OF IMMUNOSUPPRESSIVE 1984 to 1989, the number of cadaveric kidney transplant recipients receiving cyclosporine grew THERAPY from 73 to 93 percent (17) (table 13). The use of this The variation in cost associated with immunosup- drug increased even more dramatically for living- pressive agents and protocols is substantial. Costs of donor kidney transplant recipients, fi-om 38 percent cyclospmine maintenance therapy protocols, for in 1984 to 87 percent in 1989. Overall, approxi- example, are much higher than those of traditional mately 90 percent of kidney transplant recipients, maintenance therapy.s The reported costs for tradi- regardless of source of graft, received cyclosporine tional outpatient therapy using only prednisone and as the primary immunosuppressive agent in 1989.4 azathioprine were $2 per day in 1988, compared with reported average costs for cyclosporine-based The percentage of transplant recipients receiving therapies ranging from $9 to $23 per day, depending cyclosporine is probably similar for recipients of on the source of information (6,7). other organs, since cyclosporine was already known to be the most effective irnmunosuppressive drug Annual costs are similarly variable across proto- when these procedures began to be performed more cols and over time (table 15). In 1988, average regularly. In contrast, when kidney transplants were amual costs for traditional therapy were reported to initially performed, cyclosporine had not yet been be $852 for the first year of outpatient therapy and approved by the FDA. Consequently, physicians $793 for the subsequent year in 1988 (7). In contrast,

A~gene~, ~nventio~ ~Uosuppressive tiempy is only used by patients who reeeived transplants before the cyclospofie em (i.e.) before 1984)> or by patients unable to tolerate cyclosporine. Nearly all new patients are now placed on cyclosporine, while very few patients who have been on conventional therapy are converted to cyclosporine, unless unique problems arise (7). 5The 1991 average ~holes~e Pfices (A~s) for ~gs us~ ~ ~wosuppressive ~erapy were: $1$).43 for 1,000 5-mg tablets of prednisone (rnanufacturedby Rugby); $87.25 for 10050-mg tablets of azathioprine (Inmran); $209.79 for one 5-ml ampule of 50 mg/ml of antithymocyte globulin (Atgam); $214.20 for one 50-mg oral solution of 100 mgkrd of cyclosporine (Sandimmune); and $522.00 for one 5-ml ampule of 1 mg/ml of muromonab CD3 (OKT-3) (34a). These numbers do not necessarily reflect comparable dosages, but nonetheless the differences in the AWPS among traditional and more recent drugs are striking. 26 . Outpatient Immunosuppressive Drugs Under Medicare

Table 14—Percentage of Transplant Recipients Receiving Specific Immunosuppressive Drugs by Drug Type, 1987-90a

Percentage of patients receiving: Transplant type Other drugs and settingb Cyclosporine Azathioprine Prednisone ALGIATG OKT-3 and therapies Heart Inpatient ...... 94.7Y0 91.070 89.2!L0 26.5Yo 28.3Yo 1 .2?40 At 1 year outpatient...... NA NA NA NA NA NA Kidney (cadaveric) Inpatient ...... 96.9 82.7 94.0 28.7 16.0 25.4 At 1 year outpatient...... 94.0 81.5 92.5 1.6 3.3 11.6 Kidney (iiving-donor) inpatient ...... 85.5 81.5 92.9 16.0 8.3 23.5 At 1 year outpatient...... 84.4 82.3 90.7 1.4 2.5 11.5 Liver inpatient ...... 98.5 66.2 90.8 13.2 27.7 44.8 At 1 year outpatient...... 96.3 67.2 92.3 0.6 2.8 15.3 Heart/iung inpatient ...... 92.6 91.2 73.0 48.0 32.4 2.0 At 1 year outpatient...... NA NA NA NA NA NA Lung inpatient ...... 83.1 89.2 77.1 41.0 34.9 4.8 At 1 year outpatient...... NA NA NA NA NA NA Pancreas Inpatient ...... 98.5 98.1 96.3 40.2 32.0 14.1 At 1 year outpatient...... 99.0 98.6 98.6 14.5 23.5 1.7 ABBREVIATIONS: NA = not available; ALG/ATG - anti lymphocyte or antithymocyte globulin; OKT-3 - Orthoclone OKT-3. aBasedon information about patients transplanted between Oct. 1, 1987and Dec. 31, 1989forwhom information was available. Most recipients received more than one immunosuppressive drug. bInformation on immunosuppressive therapy for bone marrow transplant recipients was not available. ~he “other” category includes FK-!506, cyclophospharnide, trimethoprirn/sulfa, solumedrol, chemotherapy, total Iymphoid irradiation, and methyl- prednisolone. SOURCE: U.S. Department of Health and Human Services, Public Health Service, Health Resources and Services Administration, Division of Organ Transplantation, 1991. average costs for cyclosporine double drug therapy annual costs appearing in table 15 illustrate cost (i.e., maintenance therapy with cyclosporine plus differences across the more common protocols and predisone) were $5,338 in the first year and $4,025 are reasonable approximations of the 1988 costs of in the subsequent years. Thus, the simplest cy - outpatient immunosuppressive protocols. closporine maintenance therapy is roughly seven times more costly than the traditional therapy.G The differences in the estimates of the average These numbers are underestimates of total current annual costs of cyclosporine therapies deserve note. ongoing costs, since they do not account for costs The higher historical figures cited in table 15 are associated with such factors as organ rejection, based on a literature review of published data; the conversion horn one protocol to another, and lower Battelle numbers are based on results of a general inflation related to the cost of the drugs. For 1989 study done under a cooperative agreement with example, the treatment of organ rejection can add the U.S. Health Care Financing Adrninistration. considerably to the frost-year immunosuppressive Rough cost estimates provided by some transplant drug costs of transplant recipients. (For the most surgeons likewise suggest that the earlier published part, the added drug costs would be absorbed in the numbers may have been somewhat overstated com- hospital’s inpatient payment for Medicare patients. pared with present costs. (28,32). Based on these However, rejection episodes would increase outpa- opinions and the findings of the Battelle study, a best tient costs to some extent as well.) Nonetheless, the estimate of the current average annual costs of

GNote tit tie simplest cyclospofie-based protocol is not necessarily the least expensive, since the addition of other drugs codd petit tie dosage (and thus the cost) of cyclosporine to be dezreased. Chapter .%lmmunosuppressive Drug Therapies ● 27

Table 15-Annual Drug Costs for Immunosuppressive Protocols of Kidney Transplant Patients, 1988a

First year costs Immunosuppressive Subsequent year 5-year protocol Inpatient Outpatient Total outpatient cost outpatient totalsb Traditional therapy: Without ATG/ALG while inpatient . . . $ 95 $ 852 $ 947 $ 793 $4,024 With ATG/ALG while inpatient...... 10,385 852 11,237 793 4,024 Cyclosporine therapy:c Double-drug Historicald...... 638 8,126 8,764 8,198 40,918 Battelle studye ...... 550 5,338 5,888 4,028 21,450 Triple-drug Historicald...... 4,034 7,756 11,790 8,227 40,664 Battelle studye ...... 4,274 3,899 8,173 3,157 16,527 Quadruple-drug Historicald...... 5,626 7,193 12,819 6,870 34,673 aBa~ed on a 7r)-kg person (154 ~unds). bcosts are in constant 1988 dollars. cDouble, triple, and quadruple drug therapy refers hereto the number of drugs administered in the initial or inpatient phase. dBased on previous~ publish~ d~t~ as reviewed by Battelle Human Affairs Research Center, Seattie, WA. ef3ased on a recent Battelle study of 99 patients, August 1989. SOURCE: Battelle Human Affairs Research Centers, Seattle, WA, Cost and Outcome Analysis of Kidney Transp/arrtation: Tbe /mp/ications of /rritia/ /immunosuppressive Protocol and Diabetes, under agreement with the Health Care Finanang Administration, Cooperative Agreement 14-G9856410, August 1989. cyclosporine-based treatment protocols is $4,000 to traditional therapy, dramatic improvements in graft $6,000 per year. survival and decreased complications are also evi- A likely reason for lower present than historical dent (7,23,28). Consequently, the higher therapy- cyclosporine costs is that the dosage requirements, related costs are balanced to some extent with cost and thus the costs, for cyclosporine have declined savings from preventing complications and episodes over time. The added cost of drugs used adjunctively of acute rejection. Recent studies have suggested, with cyclosporine is apparently not high enough to however, that the initial association of cyclosporine offset the cost savings from the lower cyclosporine with lower total costs diminishes over time (42). In dosages in the protocols using these drugs. other words, for grafts surviving beyond several Although the annual therapy-related costs of the months, the use of cyclosporine may reduce actual cyclosporine protocols are still higher than those of COStS Ol@ slightly. Chapter 4 The Adequacy of Current Medicare Coverage of Immunosuppressive Therapy —

Contents Page MEDICARE COVERAGE...... 31 Historical Overview ...... 8.+””C”S””0 ...... * 31 Current Coverage and payment policies ...... ””+”.-.”...... ++ 31 Beneficiary Liabilities ...... ”...... ”.....”...~...+ ... 33 COVERAGE BY OTHER PAYERS ...... ”...”’.” ..”...”..+...... 33 ASSESSING THE ADEQUACY OF COVERAGE ...... +...... , ..”...’ ...... 34 Extent ofCoexisting Private Coverage forMedicare Recipients ...... +..9 34 Risk of High Drug-Related Expenses ...... +.”..+ 35 Effects ofExpanding Coverage ...... ”’...... +.” .o...*0”o” 36

Box Box Page A. The Battelle Study ...... ” ... ..00 o..00...... +”.+ 34 Table Table Page 16. Kidney TransplantPatients’ Risk of Out-of-PocketLiabi.l.ities for ImmunosuppressiveD rugs ...... +...... ~..”...... ++..+”+”~m. 35 Chapter 4 The Adequacy of Current Medicare Coverage of Immunosuppressive Therapy

This chapter begins with a historical overview of ment of Health and Human Services (DHHS) to the development of Medicare’s coverage policy for establish the National Task Force on Organ Trans- outpatient immunosuppressive drugs. It then de- plantation as part of the National Organ Transplanta- scribes Medicare’s current coverage and payment tion Act the following year (Public Law 98-507). policies for outpatient immunosuppression and briefly The task force’s report on immunosuppressive reviews the policies of other third-party payers. therapies, submitted in October 1985, emphasized Finally, the chapter assesses the patient’s financial that cyclosporine was a major breakthrough in burden and the adequacy of current coverage of transplant imrnunosuppression and recommended immunosuppressive drugs. that all public and private health benefit programs provide coverage for outpatient immunosuppressive MEDICARE COVERAGE drugs (59). The task force placed particular emphasis on targeting Federal funding to those patients who Historical Overview were regarded as most financially needy. Post-transplant irnrnunosuppressive drugs approved Subsequently, in the Omnibus Budget Reconcili- by the U.S. Food and Drug Administration (FDA) ation Act of 1986 (Public Law 99-509), Congress and administered during an inpatient hospital stay, extended Medicare coverage to FDA-approved im- either at the time of the transplant procedure or at any munosuppressive drugs for 1 year following the date subsequent hospitalization, are automatically cov- on which a beneficiary is discharged from the ered by Medicare. Reimbursement for these inpa- hospital after a Medicare-covered transplant. Thus, tient drugs is included in the hospital’s payment for since January 1, 1987, all patients qualifying for inpatient services. Similarly, drugs that must be Medicare who purchase the optional Part B cover- administered under the direct supervision of a agel and who received a Medicare-covered trans- physician are routinely covered when given in a plant have been eligible for outpatient immunos- physician’s office. uppressive drug coverage. Drugs administered outside of a medical setting, Congress temporarily extended the l-year cover- however, are subject to different rules. Medicare age limit in the Medicare Catastrophic Coverage Act statutes have historically prohibited coverage of of 1988 (Public Law 100-360). Under this Act, most self- administered pharmaceuticals. Thus, through- immunosuppressive drug therapy was to be covered out the 1960s and 1970s, Medicare did not pay for indefinitely as long as it was medically necessary, outpatient self-administered immunosuppressive and coverage was also to be provided to Medicare drugs. beneficiaries who were recipients of an organ Congressional interest in the issue of Medicare transplant that Medicare did not cover. Both of these coverage of outpatient post-transplant immunosuppr- coverage extensions for self-administered immunosu- essive drugs dates to 1983, the year the FDA ppressive drugs, however, were repealed along approved cyclosporine. Evidence of cyclosporine’s with the Act in December 1989 (Public Law improved effects over previous immunosuppressive 101-234). agents, and concern over its high costs, led the Current Coverage and Payment Policies House Committee on Energy and Commerce to convene a hearing on outpatient immunosuppressive In the outpatient setting, Medicare coverage and drug coverage in November 1983 (49). Although the payment rules apply separately to the two main hearing did not result in immediate legislation components of immunosuppressive drug therapy: specific to outpatient immunosuppressive coverage, the drug products themselves, and the physician Congress did require the Secretary of the Depart- management component. A facility reimbursement

IMore tin 96 percent of eligible persons purchase Pti B covtiage (53). –31– 32 ● outpatient Immunosuppressive Drugs Under Medicare component may also apply, if a patient visits an when they are dispensed by a hospital pharmacy. In outpatient hospital clinic to see a physician and ffl either case, the beneficiary is subject to the Part B the prescription. Each of these components is deductible of $100 (Public Law 101-508). The discussed below. beneficiary is also liable for a coinsurance amount equal to 20 percent of reasonable charges (for drugs Immunosuppressive Drug Products purchased from a nonhospital source) or 20 percent of the facility’s actual submitted charges (for drugs Medicare currently covers self-administered out- obtained from a hospital pharmacy ).5 b patient immunosuppressive drugs for 1 year, starting on the date of the patient’s discharge from the Physician Management hospital after a Medicare-covered kidney, heart, liver, or bone marrow transplant (2,55). Medicare’s The management services provided by a physi- policy is to cover all drug products that are approved cian in comection with immunosuppressive therapy by the FDA and have a label indicating use for include prescribing and adjusting the dosage of the immunosuppressive therapy.2 In addition, Medicare various drugs and monitoring the patient for any covers adjunct prescription drugs (e.g., prednisone) possible side effects and complications associated when they are used as part of the immunosuppres- with therapy. Physician management services are sive therapeutic regimen. covered under Medicare for all organ transplant recipients. These services would be recognized as Coverage applies to both oral and parenteral physician outpatient visits and, therefore, payment is (non-oral) forms of administration as long as FDA based on the allowed charge for the visits. has approved the drug for that type of administration. Outpatient coverage includes both prophylactic Medicare’s policy varies slightly for a Medicare- therapy to prevent organ rejection and acute treat- covered kidney transplant procedure. Medicare rec- ment when rejection occurs. ognizes all transplant surgeon services furnished during a 60-day period following post-transplant Because Medicare’s coverage of outpatient irn- hospital discharge as a global service. Kidney munosuppressive drugs is provided through Part B, transplant surgeons receive the lesser of the actual the Supplementary Medical Insurance Trust Fund, it submitted charge or a maximum allowance for all is limited to those patients who qualify for Medicare related services, including immunosuppressive ther- and who have purchased the optional Part B cover- apy management. After the 60-day period, immunos- age. The beneficiary’s premium cost for this cover- uppressive drug management services are recog- age is $29.90 per month during calendar year 1991. nized as a physician outpatient visit and paid 7 Reimbursement of outpatient immunosuppres- according to the allowed charge. sive drugs is determined on a customary, prevailing, Outpatient Facility Component and reasonable charge basis when the drugs are dispensed by a retail pharmacy, physician, supplier, In a hospital outpatient setting, Medicare may pay or mail-order house.3 4 Reirnbursement of these not only for the drugs and the physician encounter drugs is determined on the basis of reasonable costs but also for the use of the facility. If the patient visits

2TW0 ~p=i~v ~onmactors process ~1 cl~s for se~.awstered drugs received from nonhospital Outpatient sourws: Tr~~eri~ O~idenM of California and Blue Cross/Blue Shield of South Carolina. These carriers are expected to keep informed of FDA additions to the list of the immunosuppressive drugs.

Ssee glossW (aPp. C) for an explanation of customary, prevtitig, and reasonable c~ges. dMedicmeJs paPent for self-awstm~ imm~osuppressive drugs ~ be ~ected by the implemen~tion of the new Medicare physician fee schedule-based payment system that begins January 1992 (55 FR 36178). Payment for immunosuppressives, however, will be included in the fee schedule when the drug cannot be self-administered and is provided as part of a physician visit. 5S~W tie ~g is ~imbursed on a reasonable cost basis, and these costs are not determin ed until after the service is performed, it is administratively infeasible to base beneficiary coinsurance on actual Medicare payments. The beneficiary’s out-of-pocket costs are based on submitted charges for these providers, and thus they can be higher than when the drug is received through other sources even if Medicare’s payment is lower. Wongress is considering other systems of payment for hospital outpatient services (Public Law 99-509). Reimbursement of immunosuppressive drugs in the outpatient hospital setting could be affected by any such system. Tmrmmosuppressive therapy management services will not be included in the forthcoming Medicare fee schedule until a Common Procedure Terrninology (CPT) code is created that recognizes the provision of this service. According to staff at the Health Care Financing Adrninistratio% the agency has requested carriers to continue assigning local codes for immunosuppressive management services in the absence of CPTa code. Chapter 4-The Adequacy of Current Medicare Coverage of Immunosuppressive Therapy ● 33 the physician while at a hospital-based clinic, the Out-of-pocket expenditures for outpatient im- hospital may submit a bill for the facility-related munosuppressive drugs are believed by some to act costs of that visit. Payment to the hospital is based as disincentives that discourage some end-stage on reasonable costs. Under this circumstance, a renal disease (ESRD) patients from having a trans- separate physician bill for immunosuppressive ther- plant. The extent of the disincentives is unclear apy management could also be submitted, as could because the alternative treatment to kidney trans- a bill from the hospital pharmacy for the drug. In plants is dialysis, for which the coinsurance amount short, depending on the site of the therapy, multiple ($3,800 a year)10 is nearly as much as the annualcost bills may be submitted to Medicare for coverage of of outpatient imrnunosuppressive drugs. Since both services related to immunosuppressive therapy. the dialysis coinsurance amount and the annual costs of immunosuppressive vary substantially among patients, however, for some patients immunosup- Beneficiary Liabilities pressive may indeed be significantly more costly. A From the patient perspective, out-of-pocket ex- stronger disincentive may be fear of losing all penditures for outpatient irnmunosuppressive drug Medicare coverage. Half of kidney transplant recipi- therapy can be substantial. Average annual costs for ents become ineligible after 3 years, whereas dialy- most maintenance immunosuppressive treatment sis patients are eligible indefinitely (17). are between approximately $4,000 and $6,000 (see Some beneficiaries have protection from these ch. 3). Given that the national average charge obligations. During the first year of immunosuppres- reduction rate for Medicare was 28.8 percent in 1988 sive therapy when Medicare drug coverage applies, (3,36), aroughapproximationof the average Medicare- 8 some patients have their coinsurance paid by Medic- determined allowed charge is $2,850 to $4,270. The aid or private insurers (7,17). After that frost year, beneficiary would be required to pay 20 percent of recipients with private insurance are usually covered the allowed charge, or between $570 and $850 on for the majority of their drug costs from that source. average during the first year following the trans- They are then responsible for that payer’s coinsur- plant. ance and any other insurance-related payments (e.g., Similar cost-sharing requirements would hold premium costs). In contrast, beneficiaries with true in subsequent years for patients with private insufficient coverage (no drug benefit)-or with no insurance in addition to their Medicare benefits. additional third-party coverage at all-would be However, those patients with Medicare only would required to pay the full cost of outpatient immunos- be responsible for the full cost of the outpatient uppressive therapy entirely out-of-pocket after the immunosuppressive treatment every year that ther- frost year (see below). apy is needed following the first year post- transplant. COVERAGE BY OTHER PAYERS These estimates of beneficiary liabilities may be State Medicaid programs appear to have broad understated, if protocol and drug costs have in- coverage of outpatient immunosuppressive drugs creased since 1988. Furthermore, the out-of-pocket (31). Although prescription drug coverage is an expenses could be still greater if the pharmaceutical optional Medicaid service, virtually all States in- provider does not accept assignment.9 In this case, clude it (48).11 A 1990 survey of 10 State Medicaid the beneficiary is obligated to pay any billed amount programs, which examined their ESRD coverage that is above the Medicare-determined allowed and payment practices, found that all surveyed charge. States covered and paid for immunosuppressive

g~e c~ge reduction rate is the percentage difference between a billed charge and the MedicarcAlowed charge. This calculation would not aPPIY directly to drugs obtained from hospital pharmacies, which are paid on the basis of their own costs. For the purposes of thisrepoz however, it was assumed that Medicarwd.lowed costs were lower than patient-reported charges by a similar amount. g“Assignment’ refers to a provider’s agreement to accept the Medicare-allowed charge as payment infull and to bill Medicare for reimbursement on the beneficiary’s behalf. Ime H~thcweF~cing Aws@ationes~tes tit me ave~ge ann~ reco~~ (composite) rate for Ididysis is approximately $lg,~ (17). The beneficiary’s coinsurance liability is 20 percent of this amount, or $3,800. llAs of Oct. 1, 1987, 14 States offered ~s s~im to categofi~y needy o~y, while 37 Sutes offered services to both the categoric~iy and medically needy population (48). 34 . Outpatient Immunosuppressive Drugs Under Medicare drugs for eligible Medicaid recipients (26). How- ever, there are some limitations to Medicaid coverage that may burden some patients. Twelve States, for example, limit the number of prescriptions per month that Medicaid will reimburse (20).12 Private insurance coverage for outpatient immunosuppressive drugs also seems to be fairly comprehensive. Blue Cross and Blue Shield plans and commercial insurers generally have policies that cover any medically necessary outpatient drugs (13). A 1989 Bureau of Labor survey of full-time employ- ees, for example, found that 96 percent had prescription drug coverage through their employer-based insurance (5a). ASSESSING THE ADEQUACY OF COVERAGE An estimated 31,000 Medicare beneficiaries were alive with functioning grafts in 1988 (see table 10, p. 20). The goal of the remainder of this chapter is to estimate how many of these beneficiaries have inadequate coverage of outpatient immunosuppressives, suggesting that unless they have high incomes they may have impaired financial access to these drugs. Extent of Coexisting Private Coverage for Medicare Recipients account for that vast majority of Medicare-covered transplants (95 percent in 1988).) Overall insurance coverage for outpatient immunosuppressive medications in the year following A 1988 survey of kidney transplant patients by the transplant appears to be fairly adequate, since Battelle found that approximately 13 percent of Medicare covers the drug during that time and these patients had no third-party coverage of their private insurance is often still in effect as well. immunosuppressives other than Medicare (7). Two- However, in the long term the number of benefici- thirds (67 percent) of the surveyed patients in this aries at risk of significant out-of-pocket costs for study said that financial assistance was provided by these drugs could be substantial if they have no other private insurers, and another 20 percent received source of coverage. Medicaid benefits. Overall, slightly less than 25 percent reported difficulty with paying for their In 1985, the National Task Force on Organ immunosuppressive drugs. Transplantation concluded that approximately 25 percent of transplant recipients had no coverage of In contrast, HCFA examined 5 years of data immunosuppressive drugs by private insurers, or by (1984-88) on Medicare enrollees receiving kidney Medicaid or other State programs (59). More recent transplants and found that 37 percent of these information from the U.S. Health Care Financing patients had private insurers as primary payers (17). Administration (HCFA) and from the Battelle Human The Battelle study may possibly overstate coverage, Affairs Research Centers (see box A) provide if uninsured people were undersampled,13 while the insights into the current insurance status of Medicare HCFA number is probably an underestimate since it kidney transplant recipients. (Kidney transplants did not count patients whose private coverage had

IzSome of ~e= Stites ~rmit exceptions to the limit if prior authorizationk obtid (20). lssome ex~ &fieve that the Battelle sample of 258 patients overrepresents well-immwi populations and that therefore the percentage with third-party coverage would be less than the estimated 67 percent (25,28). Chapter The Adequacy of Current Medicare Coverage of Immunosuppressive Therapy ● 35

Table 16-Kidney Transplant Patients’ Risk of Out-of-Pocket Liabilities for Immunosuppressive Drugs

Percentage of Post-transplant period total kidney Insurance status transplants Less than 1 year 1-3 years More than 3 years Beneficiary obligations/degree of financial risk Medicare/Medicaida 20% No coinsurance obligations/ Same as less than 1 year Same as less than 1 year generally minimal out-of- (Low risk group) (Low risk group) pocket expenses (Low risk group) Medicare/private 37 to 67% If Medicare primary, private Same as less than 1 year Coinsurance obligations or insurance coverage wraps around-no but Medicare is primary liable for premium or full coinsurance obligations payer for most cost of drug (Low risk group) beneficiaries during this (Medium to high risk If Medicare secondary, period group) generally third-party (Low to medium risk average of drug benefits— group) insurance obligations (Medium risk group) Subtotal 57 to 87% Medicare only 13 to 43% Premium and coinsurance Liable for full cost of drug Same as 1 to 3 years obligations (High risk group) (High risk group) (Medium risk group) Totai 100% aSome Medicaid programs have dollar limits and limits on number of scripts, which would affect adequacy of outpatient immunosuppressive drugs for these recipients. SOURCE: Office of Technology Assessment, 1991, based on data from the Health Care Financing Administration (1 7) and Battelle Human Affairs Research Centers (7).

become secondary. Thus, it is reasonable to assume Medicare/Medicaid Recipients that the true percentage of beneficiaries with third- A second group of beneficiaries-about 20 per- party coverage (in addition to Medicare) is some- cent of Medicare transplant recipients—are those where between 37 and 67 percent. Obviously, the who are eligible for Medicaid as well as Medicare. lower the estimate of additional financial assistance These beneficiaries are generally at low risk of (other than Medicare), the greater the pool of financial strain attributable to the cost of immunos- patients experiencing potential difficulty with pay- uppressive drugs, because Medicaid usually pays ing for their immunosuppressive medications. for the coinsurance and the full drug costs even when Medicare drug coverage ends. Exceptions to this Risk of High Drug-Related Expenses generalization might be beneficiaries who require multiple drugs in addition to their immunosuppressive and who live in States that limit the number of Medicare-Only Recipients prescriptions covered under Medicaid. The different categories of insurance coverage are Medicare/Private Insurance Recipients associated with different risks of high out-of-pocket expenses for immunosuppressive drugs. The group The third major group of beneficiaries, constitut- for whom this risk is simplest to predict are those ing between 37 and 67 percent, are those with private Medicare beneficiaries with no other insurance. If a insurance in addition to Medicare. These benefici- transplant recipient has only Medicare, he (or she) is aries are at low to medium risk of financial strain in at medium risk of financial strain in the first year, the first year on immunosuppressives. For many of when he must pay coinsurance on the drugs. He is at these beneficiaries, Medicare is the secondary payer high risk thereafter, because he must pay the full cost during this time. This group would have to pay any of the drugs. Extrapolating from the Battelle and drug coinsurance required by their private payer who HCFA data, between 13 and 43 percent of Medicare is the primary payer. For other beneficiaries, Medi- transplant recipients are in this group (table 16). care is the primary payer; this group is at low risk 36 ● Outpatient Immunosuppressive Drugs Under Medicare during the first year, when Medicare pays most During the period in which Medicare insures the drug-related costs and the private payer picks up the patient through ESRD eligibility, the patient is Medicare-required coinsurance. protected from the loss of employment or insurance coverage due to a law that states that employers From the end of the first to the third year cannot provide different insurance plans on the basis post-transplant, all beneficiaries with private insur- of ESRD status (Sec. Sec. Act sec. 1862). However, ance are at medium risk of financial strain. During after Medicare eligibility is terrninated 3 years this time, Medicare does not cover the drugs; private post-transplant, the recipient is no longer considered payers would cover the cost, but the beneficiary to have ESRD, and therefore the possibility exists would be liable for any coinsurance. that a different policy (or no policy at all) could be The period of greatest overall financial vulnera- offered by employers to kidney transplant recipients. bility for this group of beneficiaries is that beginning at 3 years post-transplant, when about half of kidney Effects of Expanding Coverage transplant of recipients become ineligible for Medi- care (17). The remainder retain eligibility (due to Assuming that these kidney transplant-related continued disability or age) but have no drug percentages are similar for Medicare recipients with coverage. At this time, individuals with private successful grafts of other organs, it appears that insurance may become responsible for: approximately 13 to 43 percent of transplant recipients have no insurance coverage after the l-year ● copayment amounts, if a private insurance was coverage period by Medicare. These percentages available through the employer or spouse’s may increase over time if recipients lose their private employer; third-party insurance. Since recipients with Medicare- ● premium and copayment amounts, if the patient only coverage would be responsible for the fill cost was no longer employed and was able to pur- 14 of the outpatient immunosuppressive drug ther- chase an individual policy; or apy, 15 extending Medicare’s coverage of outpatient ● the full cost of the drug, if the patient lost pri- immunosuppressive drug therapy would alleviate, to vate insurance and was unable to purchase a large extent, the financial burden presently experi- insurance. enced by this group. Note that although Medicare-only beneficiaries The percentage of patients eligible for transplants differ substantially in risk from those who also have who have insufficient coverage for drugs could be private insurance before 3 years post-transplant, even greater. It is possible that the patient’s ability after this time many beneficiaries in that group also to pay for post-transplant immunosuppressives is lose all Medicare eligibility. considered either implicitly or explicitly when a Both the Battelle and HCFA numbers on insur- patient is considering, or being considered for, a ance coverage are based on information gathered transplant. Thus, eliminating the limit may further within 15 months after the transplant. A recipient’s ensure that all Medicare beneficiaries who are private insurance status can change over the long potential transplant recipients have equal access to term, however. If the recipient (or the recipient’s transplantation. spouse) changes jobs, for example, the recipient may On the other hand, current financing overall be unable to obtain full insurance coverage through appears fairly adequate for 57 to 87 percent of the new employer. Medicare transplant recipients, at least in the short There is no information available on the extent to term. For most of these recipients, expanding which transplant recipients change employment Medicare’s coverage of outpatient irnmunosuppres- post-transplant and what occurs regarding continued sion would shift financing from other sources to insurance coverage and copayment/premium amounts. Medicare.

ld~e ~re~u ~o~t~ of individ~ fimmce ~licies ~e I&ely to be ve~ ~gh for ~mptit recipients, where insurance Cm be purchased at ~. 15Mmy ~msplant patients might not be able to obtain private insurance because Of the preexisting condition of ES~. Chapter 5 Medicare Expenditures for Immunosuppressive Drug Therapy Contents Page CURRENT EXPENDITURES ...... 39 FACTORS INFLUENCING FUTURE EXPENDITURES ...... 40 Changes in the immmosuppressive Drug Market ...... 40 Patient Demand and Patient Mix...... 41 Patient Adherence to Therapy ...... 42 Manufacturers’ Incentives for Technological Developments ...... 43 Other Program Costs Associated With Expanded Coverage ...... 43

Figure Figure Page 3. U.S. Kidney Transplants Performed, and Persons on Waiting List 1984-89 ...... 41

Tables Table Page 17. Estimated Number of Transplant Recipients Receiving Medicare Payment of Immunosuppressive Drugs, 1988 ...... 39 18.Estimated U.S. and Medicare Expenditures for Outpatient Immunosuppression Drug Therapy, 1988 ...... 40 Chapter 5 Medicare Expenditures for Immunosuppressive Drug Therapy

This chapter commences with a baseline estimate percent of total U.S. spending in this area (7,17). of current spending for outpatient immunosuppress- These estimates are based on the assumption that all ive drugs in the United States and under the functioning graft patients are on a cyclosporine Medicare program. The chapter then describes protocol costing between $4,000 to $6,000 per year factors influencing drug costs, the potential pool of (see ch. 3).3 Because of patient copayments, actual patients requiring post-transplant immunosuppressive Medicare program outlays would have been some- drugs, and overall future Medicare expenditures. what less than 80 percent of the $24 to $36 million, or under roughly $20 to $30 million. CURRENT EXPENDITURES Medicare does not currently play a major role in These estimates are a reasonable first approximat- financing post-transplant immunosuppressive ther- ion of national and Medicare expenditures for apy. Medicare covers and pays for imrmmosuppres- Table 17—Estimated Number of Transplant Recipients sive drugs for only an estimated 19 percent of Receiving Medicare Payment of Immunosuppressive Medicare-covered functioning graft recipients (table Drugs, 1988 17). Likewise, Medicare pays the immunosuppressive drug costs for only about 13 percent of the U.S. Proportion with Medicare drug total number of living, functioning graft patients. payment as a percent of: This small proportion is due largely to the l-year All Medicare- All U.S. covered transplant transplant limit on coverage of immunosuppressives. Graft type Numbera recipients recipients Another element of financing that influences Kidney ...... 5,850’ 1970 15% these percentages is the mandatory requirement that Heart ...... 95 45 3 Liver ...... 5C 48 <1 Medicare be the secondary payer for the first 18 Heart/lung ...... o — — months of a patient’s eligibility under the End-Stage Lung ...... 0 — — l — Renal Disease (ESRD) Program. In other words, Pancreas ...... 0 . Bone marrow. . . . . 30 55 1 even though an ESRD patient is entitled to Medicare Total ...... 5,980 19 13 coverage once determined eligible for Medicare benefits, Medicare will pay for covered services provided these beneficiaries only after any existing private insurance policies have paid. Approximately 37 to 67 percent of Medicare-covered kidney transplant recipients have private insurance during this period (see ch. 4).2 Therefore, even within the l-year coverage period for outpatient immunosuppressives, Medicare is not paying for the drugs administered to these ESRD kidney transplant recipients because of the mandatory secondary payer requirement. The Office of Technology Assessment (OTA) estimates that national spending for outpatient immunosuppressive agents was between $185 and $280 Won in 1988 (table 18). Medicare-related expenditures, including all beneficiary liabilities, were an estimated $20 to $30 million, or nearly 11

ls~m 1982, Meficwe has been tie man~to~ SeCon@ payer for ES~ beneficifies for the fiist 12 months of eligibility. A provision in the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) extended this limit to cover the first 18 months of eligibility, effective Jan. 1, 1991. k contrast only 3 percent of the working aged have selected Medicare as secondary payer (37). sTh,is ~suption should result in an overestimate of expenditures, since a few patients are not on cyclosporine-based protocols.

–39– 40 ● Outpatient Immunosuppressive Drugs Under Medicare

Table 18—Estimated U.S. and Medicare Expenditures for Outpatient Immunosuppressive Drug Therapy, 1988

Number of recipients with functioning cost of Total expenditures graft therapy (in millions)a United States ...... 46,605 b $4,000-$6,00W $185-$280 Medicare-covered ...... 5,98@ $4,000-$6,00& $24-$36” aAssumes that 100 percent of functioning graft patients are on cyclosporine drug therapy. This overstates actual expenditures, since some kidney transplant recipients are on traditional therapies with lower costs and a few are not on outpatient immunosuppressive therapy. bsee table 11. cSee oh. 3. ‘See table 16. elncludes all beneficiary liabilities. Actual program outlays would be lower. SOURCE: Office of Technology Assessment, 1991. outpatient immunosuppressive medications in 1988; No definitive empirical evidence is available on 1991 expenditures would be somewhat higher, due the precise effect of any one of these factors on to the continuing increase in the number of organ current or future Medicare expenditures. Nonethe- transplant procedures. The Medicare figure is a less, the effects could be substantial. Nearly half of baseline estimate of 1988 expenditures (including the factors could influence Medicare outlays in the beneficiary liabilities). It is based on coverage as set future even if there are no changes in coverage out in current law, under which outpatient immunos- policy. Other factors are issues to consider only if uppressive drug coverage is limited to one year, Medicare’s policy for coverage of outpatient im- starting with the patient’s discharge date from a munosuppressives is expanded. hospital or designated transplant center after a Medicare-covered organ transplant. Changes in the Immunosuppressive Note that these figures are not estimates of the Drug Market overall cost of immunosuppressive therapy. They do not, for instance, encompass other services related to Even without any changes in policy, future immunosuppressive therapy, such as a hospital Medicare expenditures for outpatient irnmunosup- outpatient visit or physician immunosuppressive pressives could be significantly affected by changes drug management services. They also do not account in the market. For example, any new products now for the costs of drug therapy in organ rejection under development (e.g., the drug FK-506) have the episodes or the costs of treating side effects caused potential to be more costly than cyclosporine when by immunosuppressive drugs. Other factors that approved for clinical use. Medicare outlays for might affect these expenditure estimates include outpatient irnmunosuppressives may increase with patient behavior, such as noncompliance; variation the use of more costly drugs, even if coverage policy in patient treatment; and provider prescribing (e.g., is unchanged from the l-year coverage limit. Alterna- conversion from one therapy to another). tively, a greater choice of drugs and the development of lower-cost protocols could reduce Medicare FACTORS INFLUENCING expenditures. FUTURE EXPENDITURES Other changes in drug pricing could occur when The effect of any particular change in Medicare the patent for cyclosporine expires in 1995. After policy regarding irnrnunosuppressives depends in that time, the potential for the availability of less part on a number of outside factors, which can be expensive generic drugs also exists. Whether this separated into two groups. The first set of factors potential will be realized depends on whether other affects the cost of the drug product. A second set of pharmaceutical manufacturers decide to enter the factors affects the potential pool of transplant irnrnunosuppressive market. The extent to which patients receiving Medicare coverage for imrnuno- future costs are lower also depends on Sandoz’ own suppression. Both affect the overall cost of provid- reliance on revenues from this drug. Some research ing this therapy. suggests that Sandoz may maintain a high price for Chapter S-Medicare Expenditures for Immunosuppressive Drug Therapy . 41

Figure 3-U.S. Kidney Transplants Performed, and Persons on Waiting List, 1984-89

18,000

I 16,363 16,000

13,947 14,000

11,873 12,000 10,605 9,761 10,000 8,562 > 8,000 6,968 [

6,000 1984 1985 1986 1987 1988 1989

~ Persons on waiting list + Persons with kidney transplants

SOURCE: Office of Technology Assessment, 1991, based on data provided by the Health Care Financing Administration.

cyclosporine if this product is a major source of extent that this is so, more comprehensive outpatient revenues to the company (10,50). immunosuppressive drug coverage by Medicare Changes in the way existing drugs are used could may increase patient demand, either directly or by also affect the cost of therapy and Medicare outlays. increasing physician recommendations for trans- For example, the use of OKT-3 as an outpatient plants. prophylactic would tend to increase the cost of Despite possible higher demand, the limited outpatient immunosuppressive therapy. Minnesota’s supply of suitable organs will continue to constrain antilymphocyte globulin may also be used more the number of transplant procedures performed. widely once it receives approval from the U.S. Food Even with existing demand, for example, the number and Drug Administration, although this is more of persons on the waiting list for kidney transplants likely to affect inpatient costs than outpatient is much higher than the number of persons trans- maintenance expenses. planted (figure 3). The existing unmet need for Innovations and substitutions can have significant donated kidney organs is projected to continue and not always consistent consequences for the cost through the decade (18,21). Thus, expanding irn- of irnmunosuppressives. For example, if a new drug munosuppressive coverage may increase the de- is more expensive but reduces the need for adjunct mand for organ transplants, but it will have little drugs, or reduces rejection and complications- effect on the actual number of transplants performed. related expenses, it could result in lower treatment Although the number of transplants may not be costs per patient. influenced by Medicare’s coverage policy for outpa- Patient Demand and Patient Mix tient irnmunosuppression, the mix of patients receiving transplants may be affected. The criteria by It is possible that patient selection for a transplant which one patient is selected over other another for procedure may be influenced, however indirectly, by a transplant are broad and complex, and inability to the ability of the patient to pay for expensive pay for drugs in the future would rarely, if ever, be outpatient therapy following the transplant. To this an explicit criterion (30,38). Nonetheless, current 42 ● Outpatient Immunosuppressive Drugs Under Medicare

discrepancies due to insurance status and race have poorly coded (25,28). A National Kidney Founda- been noted in the treatment of patients for kidney tion survey suggests that nonadherence to therapy failure (30,58). Broader Medicare drug coverage may account for almost 10 percent of kidney graft might indirectly improve the equity of access to losses after the frost year (25). transplants. If Medicare’s coverage limit of 1 year were eliminated, for example, patients who are now Thus, the extent to which impaired financial unable to afford the expense of these drugs following access leads to organ rejection is highly uncertain. kidney transplant may be more likely to consider the Furthermore, perfect patient adherence to the pre- procedure rather than continue on dialysis. Simi- scribed protocol is in no way guaranteed even if larly, transplant centers and physicians may change Medicare’s coverage is expanded. Some patients their evaluation process for selecting transplant voluntarily stop immunosuppressive therapy be- candidates. cause of their perceived poor quality of life (7). Nonetheless, it is likely that at least some of the costs The implications that changes in patient mix may associated with organ rejection (e.g., additional have for Medicare outlays overall are not easily hospital admissions, return to dialysis for kidney predicted; expenditures may either increase or de- graft failure patients, and other costs associated with crease depending on the resulting differences in the rejection episodes) would be reduced with expanded health status, age, or other characteristics of the new Medicare coverage. transplant population served. Any effect specifically on Medicare drug expenditures, however, would Despite the lack of precise data, tracing out a very probably be small. simplistic hypothetical scenario is a useful exercise to explore the potential magnitude of savings. If, hypothetically, as many as 10 percent of all graft Patient Adherence to Therapy failures were caused by the patient’s financial Expanded coverage may increase patient adher- inability to adhere to the drug regimen, this would ence to the prescribed drug regimen, resulting in mean that beyond the frost year of a transplant, more regular and continued use of the immunosup- approximately 268 Medicare recipient renal graft pressive drugs that the patient requires. The outcome failures per year would be associated with nonadher- may be fewer episodes of acute organ rejection, ence.G In the case of patients with ESRD, increased fewer hospitalizations, and possibly fewer patients graft failure results in more patients returning to returning to dialysis. Expanding Medicare’s cover- dialysis, at an annual average cost to Medicare age policy may thus reduce certain other Medicare (including patient liabilities) of approximately $19,000 expenditures. per patient each year (17). Thus, under this hypothesis, a Medicare policy that eliminated all graft Estimating the number of organ rejections that failures associated with nonadherence would have result from nonadherence to therapy, due to a an offsetting program savings of roughly $5 million financial inability to obtain drugs, is difficult. On the per year. Under a hypothesis of fewer graft failures one hand, the American Society of Transplant due to nonadherence, offsetting savings would be Surgeons (ASTS) believes that nearly 47 percent of correspondingly lower (e.g., if 3 percent failed for transplant recipients have difficulty paying for this reason, eliminating all of these failures would drugs, implying a high potential inability to obtain 4 save approximately $1.5 million). Preventing hospi- drugs (4) On the other hand, U.S. Health Care talizations due to acute organ rejection would result Financing Administration (HCFA) data show that in some additional savings. less than 3 percent of all graft failures occur as a result of patient nonadherence to therapy for any Another way to view the potential savings from reason (17).5 Advocates argue that the HCFA data is averting graft failure is to examine the relative

4~em ~e some ~tenti~ ~roblem~ ~th this fiWe. It is based on a s~ey of s~geons’ opinions regartig the percentage of their patien~ who hWe financial difficulty, not a survey of the patients themselves. In additiom the analysis of this sumey averaged all of the surgeon-reported percentages together, which results in an accurate aggregate percentage only if all surgeons have the same number of patients. sBased on ~ ~sessment of ~~ey graft fail~e c~es from the @ansplant follo~p forms for all transplant ftid~s oCCWTkg dtig the Calendar years 1985 through 1988. Of the 5,580 graft failures in which a failure code was submitted, 3.3 percent were due to poor patient compliance with immunosuppressive therapy (17). %ere were an average of 2,677 kidney graft failures per year from 1985 to 1988 (17). Chapter Medicare Expenditures for Immunosuppressive Drug Therapy . 43 benefits of successful transplantation. HCFA has Other Program Costs Associated With found that transplants pay for themselves when Expanded Coverage compared with dialysis within 3.7 years for living- donor kidney patients and 4.7 years for cadaver- If coverage were expanded past the current 1-year donor kidney patients (17).7 limit, Medicare outlays would increase due to the cost of the outpatient immunosuppressive drug. In Manufacturers’ Incentives for addition, Medicare expenditures would result from Technological Developments any related increase in services provided by physicians and outpatient hospital facilities. Medicare coverage policy changes will probably have only a slight effect on overall level of use of Furthermore, if coverage for drugs were ex- outpatient immunosuppressive drugs. Thus, cover- panded, Medicare might come under pressure to age policy changes will probably also have little cover other outpatient services that are required by effect on manufacturers’ incentives to pursue tech- transplant recipients or other Medicare benefici- nological developments. The main effect might be to aries. For example, some transplant recipients re- remove any existing disincentive against developing quire outpatient nonimmunosuppressive prescrip- new immunosuppressives that would be expensive tions to prevent development of secondary compli- on the market, since Medicare currently pays fairly cations (e.g., hypertension, stomach ulcers, and bone generously for covered drugs. disorders). Total program costs might increase if coverage were extended to include these drugs as Changes in payment policy for the drugs, on the well. Similarly, easing financial access to drugs for other hand, could affect development incentives transplant recipients through measures such as substantially. Studies have shown that industry is reducing coinsurance obligations might lead other extremely sensitive to changes in method of pay- Medicare beneficiaries (e.g., dialysis patients) to ment in terms of pricing strategies and incentives for argue that their coinsurance obligations should be developing emerging technologies (51). The precise reduced as well. direction of the incentives would depend on the payment policy adopted.

7~e ~sts fi MS Comp~son did not ~clude ~unosupp~ssive drug costs for ~~plant patients or costs of erydlropOiedIl fOr dkdySiS.

Appendix A Method of the Study

History of the Project In addition, the contractor conducted literature reviews and received a substantial amount of data from a variety The origins of this study lie in the passage of the of individuals and organizations. Some of these data were Medicare Catastrophic Coverage Act of 1988 and its previously unpublished, and OTA is indebted to these subsequent repeal in 1989. That act included a broad individuals and organizations for their cooperation and measure that would have extended Medicare coverage to assistance. outpatient prescription drugs. In doing so, it would have resulted in greater coverage of outpatient immunosuppressive drugs (now limited to coverage for only 1 year), Most major OTA studies have a panel of outside and it also would have established a home intravenous experts chosen to advise OTA staff on the study and drug therapy benefit. With the repeal of that act, these two ensure that all significant points of view are represented. specific coverage expansions once again became issues This study was originally intended to be performed in before Congress. coordination with an ongoing study of drug research and development, with the same advisory panel. It transpired, In April of 1990, the Senate Committee on Finance however, that the two studies had little directly in asked the Office of Technology Assessment (OTA) to revisit these two topics and the relevant coverage and common, and the advisory panel for the earlier study payment issues they involve. The proposed assessment proved inappropriate for the existing study. Because of was approved by OTA’s congressional Technology the short time me for this study, it also proved infeasible Assessment Board on June 2, 1990, and it began the to appoint a separate advisory panel at the point for the following month. The assessment was conducted in two current study. parts leading to two separate reports, one on immunosuppressive drugs and one on home intravenous drugs. To ensure that sufficient expert advise was obtained and that all viewpoints were represented, OTA staff took Conduct of the Immunosuppressive especially great care to involve a variety of outside Drug Study persons in the review of the draft material. Some The preliminary draft of the study of immunosuppres- preliminary findings from the report were presented in sive drugs was prepared under contract to OTA by Diane organized informal discussions with staff of the U.S. Burnside Murdock of Falls Church, Virginia.1 During her Health Care Financing Administration, the Urban Insti- preparation of the draft, the contractor consulted with tute, and OTA. A revised draft was then sent to over 40 consumer and professional organizations, Federal and experts in the field, including medical providers, patient State agency personnel, health services researchers, organizations, health care payers, researchers, and others independent health professionals, and other interested with interest and knowledge in the area of organ individuals in order to identify critical issues and relevant transplantation and immunosuppressive therapy for their sources of data. The contractor also consulted frequently review and comment. The final draft, incorporating with OTA staff regarding the scope and directions of the revisions based on reviewers’ comments, was transmitted study. to the Technology Assessment Board in May 1991.

1 Dime BurnSide Murdock is a consultant in health pOficy and PI arming in the Washington DC area. Before turning to consulting she held a number of positions in the health policy field, including senior policy analyst at the Prospective Payment Assessment Commission and senior budget analyst at the Congressional Budget Office. 4’1– Appendix B Medicare Payment Policy for Organ Transplant Procedures

Service Payment recipient Payment method Organ procurement ...... Hospital ...... Paid through Medicare Part A based on actual Costs.e Physician ...... Charges considered to be part of hospital costs and paid as part of those rests if organ obtained from a cadaver. Charges reimbursed directly on the basis of customary, prevailing, and reasonable charges if living-donor organ. No beneficiary coinsurance required. Transplant procedure ...... Hospital ...... Paid through Medicare Part A’s prospective payment system for hospital inpatient Care.b Physician: Heart, liver, and bone marrow transplants ...... Paid through Medicare Part Bon basis of customary, prevailing, and reasonable charges. Patient pays Part B deductible and coinsurance. Kidney transplants ...... Payment is the lesser of the customary/prevailing/reasonable charge or a maximum amount in a carrier’s area for renal transplant surgery. Patient pays Part B deductible and coinsurance. aF~r bone marrow transplants, the payment for acquisitions is incl~ed in the diagnosis-related group payment Under the prOS@iVe payment SyStem. bA few hospit~ls (e.g., ~fiain ~nmr s~alty hospitals) are not paid under the prosp~tive payment system. Inpatient care in these hospitals k based On historical hospital-specific costs. SOURCE: U.S. Health Care Financing Administration, Bureau of Policy Development, Division of Dialysis and Transplant Payment Policy, 1991.

48– Appendix C Glossary of Abbreviations and Terms

Abbrevia.tions Balance billing: In the Medicare program, the practice of billing a Medicare beneficiary in excess of Medicare’s ALG — Antilymphocyte globulin allowed charge. The “balance billing’ amount would AMA— American Medical Association be the difference between Medicare’s allowed charge ASTS — American Society of Transplant Surgeons and the physician’s (or supplier’s) billed charge. ATG — Antithymocyte globulin Cadaveric kidney: A kidney obtained from a deceased AWP — Average wholesale price donor. AZA — Azathioprine Carrier: A fiscal agent (typically a private insurance CPT — Common Procedure Terminology company) under contract to the Health Care Financing CSA — Cyclosporine Administration to administer Medicare Part B benefits. DHHS — U.S. Department of Health and Human Serv- Coinsurance: That percentage of covered hospital and ices medical expenses, -after subtraction of any deductible, ESRD — End-stage renal disease for which an insured person is responsible. Under FDA — Food and Drug Administration (Public Medicare Part B, after the annual deductible has been Health Service) met, Medicare will generally pay 80 percent of HCEA — Health Care Financing Administration (DHHS) approved charges for covered services and supplies; the OKT-3 — Orthoclone OKT-3 (muromonab CD3) remaining 20 percent is the coinsurance, which the OTA — Office of Technology Assessment (U.S. Con- beneficiary pays. gress) Conventional immunosuppressive therapy: See tradi- PRED — Prednisone tional immunosuppressive therapy UNOS — United Network of Organ Sharing Customary, prevailing, and reasonable charge method (Medicare): The method used by Medicare carriers to determine the approved charge for a particular Part B service from a particular physician or supplier. Under Terms this method, the approved charge is limited to the Adjunct prescription drugs: Medications that are used lowest of the physician’s actual charge for the service, as part of the immunosuppressive therapeutic regimen the physician’s customary charge for the service, and but that are not themselves primary post-transplant charges by peer physicians or suppliers in the same immunosuppressive drugs. locality. If necessary, prevailing charges are adjusted Allogeneic bone marrow transplant: A procedure in by the Medicare Economic Index. which the bone marrow is obtained from a healthy Deductible: The Medicare Part B deductible is the donor and delivered by intravenous infusion into the portion of approved charges (for covered services each recipient. calendar year) for which a beneficiary is responsible Aplastic anemia: A blood disorder in which the bone before Medicare assumes liability. The deductible is set marrow fails to produce adequate numbers of red blood at $100 in 1991. cells. Functioning graft: An implanted organ that is still Assignment: A process whereby a Medicare beneficiary functioning to some capacity of its purpose. assigns his or her right to payment from Medicare to the Graft: An implanted organ. physician or supplier. In return, the physician or Histocompatibility: The genetic compatibility between supplier agrees to accept Medicare’s reasonable (i.e., the donor and recipient, which determines in part allowed) charge as payment in full for covered services. whether an organ graft will be rejected. The physician (or supplier) may not charge the Hypertension: High blood pressure. beneficiary more than the applicable deductible and Immunology: The science concerned with the study of coinsurance amounts. For physicians and suppliers the immune system. who do not accept assignment, payment is made by Immunosuppressive drug: Any drug that suppresses the Medicare directly to the beneficiary, who is responsible natural reactions of the immune system. In organ for paying the bill. In addition to the deductible and transplants, such drugs can reduce or prevent the coinsurance amounts, the beneficiary is liable for any body’s immune system’s rejection of the organ as a difference between the physician’s actual charge and foreign substance. Medicare’s reasonable (allowed) charge. In vitro: Outside of the living body and in an artificial Autologous bone marrow transplant: A procedure in environment. which a patient’s own bone marrow is extracted, Medicare coverage: Refers to the health care benefits treated, and then restored to the patient. available to eligible Medicare beneficiaries. 50 ● Outpatient Immunosuppressive Drugs Under Medicare

Nephrotoxic: Poisonous to the kidney. Protocol: A standard course of therapy, designed to Nonrenal transplant: Any transplant other than a kidney achieve certain ends. transplant (e.g., heart, liver). Reasonable charge (Medicare): Payment on the basis of Organ graft failure: The failure of an implanted organ customary, prevailing, and reasonable charges. to function and fulfill its purpose. For kidney transplant Reasonable cost-based reimbursement (Medicare): A patients, this means a return to dialysis until another method of payment for health care services in which organ is available. For other transplant patients, organ hospitals (or other providers) are paid their incurred failure could mean death unless another organ is costs of treating patients after the treatment has available for transplantation. Occurred. Organ rejection: A condition caused by the incompati- Regimen: Any plan of therapy designed to achieve bility between an organ recipient’s genetic makeup and certain ends. the donor’s genetic makeup, leading the recipient’s Renal: Of or relating to the kidney. immune system to act against the transplanted organ. If Successful graft: An organ that functions effectively. untreated, organ rejection leads to organ failure. Syngeneic: In bone marrow transplantation, refers to a Parenteral drug administration: Any non-oral means transplant involving a donor and recipient with identi- of introducing a drug into the body (e.g., by injection). cal genetic makeups. Prophylactic therapy: Preventive measures to inhibit Traditional immunosuppressive therapy: Drug ther- disease. For transplant recipients, prophylactic immunos- apy to prevent organ rejection using azathioprine and uppressive therapy is that which prevents or inhibits prednisone. organ rejection. References

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